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S. HRG. 113–55 

STATE OF THE AMERICAN DREAM: ECONOMIC 

POLICY AND THE FUTURE OF THE MIDDLE CLASS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC POLICY 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE STATE OF THE MIDDLE CLASS AND THE ‘‘AMERICAN 

DREAM’’ TODAY FROM PERSONAL AND POLICY PERSPECTIVES 

JUNE 6, 2013 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON ECONOMIC POLICY

JEFF MERKLEY, Oregon, Chairman 

DEAN HELLER, Nevada, Ranking Republican Member 

JOHN TESTER, Montana 

MARK R. WARNER, Virginia 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

MIKE CRAPO, Idaho 

ANDREW GREEN, Subcommittee Staff Director 

SCOTT RIPLINGER, Republican Subcommittee Staff Director 

(II)

C O N T E N T S 

THURSDAY, JUNE 6, 2013 

Page 

Opening statement of Chairman Merkley ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Heller ................................................................................................... 3 

Senator Warren ................................................................................................ 4 

WITNESSES 

Diedre Melson, Portland, Oregon, subject of documentary movie ‘‘American 

Winter’’ .................................................................................................................. 6 

Prepared statement .......................................................................................... 42 

John Cox, Newberg, Oregon, subject of documentary movie ‘‘American 

Winter’’ .................................................................................................................. 9 

Prepared statement .......................................................................................... 43 

Pamela Thatcher, Tualatin, Oregon, subject of documentary movie ‘‘American 

Winter’’ .................................................................................................................. 11 

Prepared statement .......................................................................................... 44 

Atif Mian, Professor of Economics and Public Policy, Princeton University ...... 13 

Prepared statement .......................................................................................... 45 

Amy Traub, Senior Policy Analyst, Demos ............................................................ 14 

Prepared statement .......................................................................................... 53 

Nick Hanauer, Second Avenue Partners ............................................................... 17 

Prepared statement .......................................................................................... 95 

Steven D. Hill, Director, Nevada Governor’s Office of Economic Development . 19 

Prepared statement .......................................................................................... 96 

(III)

(1) 

STATE OF THE AMERICAN DREAM: ECONOMIC POLICY AND THE FUTURE OF THE 

MIDDLE CLASS 

THURSDAY, JUNE 6, 2013 

U.S. SENATE, 

SUBCOMMITTEE ON ECONOMIC POLICY, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee met at 9:35 a.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Jeff Merkley, Chairman of the Subcommittee, presiding. 

STATEMENT OF CHAIRMAN JEFF MERKLEY 

Chairman MERKLEY. Good morning. I call this hearing to order. 

It is terrific to have all of you joining us, and I want to start by 

thanking all of our witnesses for their flexibility. Senator Lautenberg’s passing and then his funeral yesterday caused us to need to 

reschedule everything on a very short time period, and so I apologize for the inconvenience that that created. I know that you all 

have traveled from afar, and thank you for rearranging your plans 

to be able to come this morning. 

Because of the complexity of rescheduling to today, we are going 

to be split into two parts, going from 9:30 to just after 10. Then 

there will be a vote and then a full Committee markup, and then 

we will return at about 11:15, as soon as the full Committee is 

done, to about 12:15 to 12:30. 

And so welcome to the complexity of the U.S. Senate, and we 

may well have Senators coming and going as their schedules allow. 

This is the first hearing that I have held as a Subcommittee 

Chair, and so I feel very honored to be holding it and to have the 

topic be the American Dream and the American middle class. 

The American Dream is a powerful concept that has driven generations of Americans to strive for a better life. Every American 

might define the American Dream a little differently, but for most, 

it is a concept broadly based around prosperity and economic opportunity, regardless of where one started in life. 

For many, like my own family growing up, the real-life essence 

of the American Dream was that, with hard work and determination, one could obtain a good living-wage job and provide for a family, own a home, and maybe start a small business—in short, work 

your way into the middle class with a belief that things might be 

better for each generation building on the foundation of the previous generation. 

2 

Unfortunately, over the last decade at least, the American Dream 

has slipped slowly out of reach for many families. Working families 

face increasingly steep challenges in accessing and staying in the 

middle class. Some of these challenges, such as underwater homes 

and high joblessness, are a specific result of the financial crisis of 

2008 and the Great Recession that followed. Others arise from 

broader trends, such as globalization and technological change. 

Still others arise from misplaced priorities in our tax budget and 

investment policies. Here are just a few background points. 

Between 1989 to 2010, hourly productivity grew more than three 

times as fast as wages. But young men ages 25 to 34 working fulltime today are earning 10 percent less than their fathers did 30 

years ago. The entire bottom 20 percent of wage earners has seen 

hourly wages decline by 30 cents, inflation adjusted, and the next 

lowest 20 percent saw those earnings fall 60 cents on the dollar, 

a 3.9-percent and 4.3-percent decline, respectively. 

This is against a backdrop of explosive earnings growth for those 

at the top, nearly a 30-percent increase for the top 20 percent in 

our society. 

Meanwhile, the costs of basic features of the middle class, such 

as public college, rent, utilities, and health expenditures have increased between 41 to 80 percent over the time period between 

1970 and 2009. 

In trying to account for these rising costs and the increasing income disparity, median family holdings of debt have gone from 

$25,300 in 1989 to $70,700 in 2010. And that debt is hitting our 

next generation hard because our students are incurring a lot more 

debt as they work to get a college education. In 2011, 66 percent 

of college seniors at public or nonprofit schools graduated with debt 

compared to only 33 percent in 1992. 

And due primarily to a collapse in home values, median net worth fell from $126,000 in 2007 to $77,000 in 2010, lower than it 

was in 2001. And as of March of this year, about one in four homeowners is underwater, meaning they owe more on their home than 

their home is worth. 

Our unemployment rate remains stubbornly high, stuck above 7 

percent, and 60 percent of the jobs that we lost in the recession 

were living-wage jobs and 60 percent of the jobs that are being restored after the recession are not living-wage jobs. So this continues to have a compressing effect on the middle class. In 1998 

through 2012, just 14 years, we lost 5 million manufacturing jobs 

and 40,000 factories. 

So however one looks at it, from income perspective, debt perspective, net worth perspective, unemployment perspective, student 

debt, things are tough. The data paint this picture: Working families have been hurting for a long time, and with the crisis in 2008, 

a lot of the families were financially crushed. 

Today’s hearing aims to shed light on both the challenges of the 

Great Recession and those that have been developing over a longer 

period of time. Most importantly, the hearing will address the reallife impacts these challenges have on working families striving to 

hold onto life in the middle class. 

We will hear from three Oregon families who were recently featured in the documentary film ‘‘American Winter’’. They were choVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
3 

sen for this film not because their stories are exceptional, but precisely because the challenges and choices that they have faced in 

the aftermath of the recession are so typical of the challenges and 

choices that families face, working families face across America. 

Frankly, we do not hear enough from ordinary working families 

who, in tough times, are fighting as hard as they can to get by. So 

I hope all of Washington will take note of their experiences, and 

I particularly want to thank them from coming a very long way to 

share their stories. 

We are also fortunate to have joining us a panel of experts in economics and business. I hope we can have a robust conversation 

about the causes of our shrinking middle class and what we can 

do at the national level to restore the pathways to the middle class. 

Those pathways are living-wage jobs, education, home ownership, 

and small business. 

After Senator Heller’s opening statement, Senator Heller and I 

will provide a brief biography for each witness, and then we will 

jump into the conversation. 

I now invite my colleague Senator Heller to offer an opening 

statement. 

STATEMENT OF SENATOR DEAN HELLER 

Senator HELLER. Thank you, Mr. Chairman, and you are off to 

a good start. And I would agree that this is a critical, critical issue 

and topic, and I am pleased to be part of this Subcommittee today 

working on these issues that I think are critically important. 

I want to thank the witnesses for taking time out of your schedule and rearranging your schedule so that we could be here today 

and certainly do appreciate that, and everybody that is also here 

that find this topic as interesting as both the Chairman and I do. 

It is no secret that the middle class is struggling, and what we 

are talking about today is on the mind of every American. I can 

tell you that in my home State Nevadans are fighting every day 

for a decent paycheck, a safe home, and a strong economy. 

Unfortunately, Nevada has been ground zero of our economic collapse. For too long, we have led the Nation in unemployment, foreclosures, and bankruptcies. It is absolutely unacceptable that the 

unemployment rate around the country remains so high because 

these are not just numbers. These are people, families who are 

struggling day by day to reclaim the American Dream. 

Every week I hold a telephone town hall meeting. I hear directly 

from my constituents about the issues that are important to them, 

and I literally get thousands of people on the line when I do this. 

Every week the number one topic that Nevadans raise with me are 

jobs and the economy. During these calls, I often ask a poll question and ask participants to give me feedback. Recently I asked a 

simple question: Is the economy improving? Seventy-nine percent 

say they do not see any signs that things are getting better. 

I have always said we must ensure a strong safety net for the 

unemployed and those who are struggling. Ultimately improving 

the health of our economy and the middle class hinges upon job 

growth, and it has not received the attention it deserves in Congress. 

4 

It is past time for a genuine effort to work in a bipartisan manner to create the certainty and stability that will allow American 

families and businesses to thrive. 

Now, I do not believe that Washington, DC, has all the answers 

to our problems. The real recovery will come from small business 

owners who hire a new employee, the worker who re-entered the 

labor market, and when students who recently graduate can find 

a job. 

Again, I want to thank all the witnesses for being here today to 

share their experiences and to offer their suggestions as to how we 

can bring the American Dream back for everyone. 

Thank you, Mr. Chairman. I look forward to all the testimonies 

from our witnesses. 

Chairman MERKLEY. Thank you very much. And we have been 

joined by Senator Warren. Would you like to make an opening 

statement? 

STATEMENT OF SENATOR ELIZABETH WARREN 

Senator WARREN. I will just make a remark, and that is to start 

by apologizing for being late. I was on the floor talking about the 

approaching increase in student loan interest rates and how Congress needs to take action now. And I hope that is something we 

can explore more in the questions. 

I want to thank you, Mr. Chairman, for holding this hearing, 

thank the Ranking Member. There is no issue that is more important than what we are discussing today. So thank you. 

Chairman MERKLEY. Well, and the issue of interest rates on student loans goes right to the heart of the challenges of sustaining 

the middle class and debt. 

Senator WARREN. Yes. 

Chairman MERKLEY. So thank you. 

I want to remind my colleagues that the record will be open for 

the next 7 days for opening statements and any other materials 

that you would like to submit. And now I will turn to introducing 

our witnesses. 

First of all, let me extend my gratitude to everyone on the panel. 

Everyone traveled a long way to be here, from Seattle, Las Vegas, 

Princeton, New York City, and, of course, from Oregon. Thank you 

very much. We deeply appreciate your commitment to sharing your 

views with the Senate. 

I would now like to introduce Diedre Melson, John Cox, and 

Pamela Thatcher, who are joining us all the way from Portland, 

Oregon. Ms. Melson, Mr. Cox, and Ms. Thatcher were the subjects, 

or you might say ‘‘the stars,’’ of the documentary film ‘‘American 

Winter’’. This documentary was produced and directed by Emmy 

Award-winning film makers Joe and Harry Gantz. It aired nationally on HBO as of March 18th of this year. Filmed over the course 

of one winter, the movie tells the real-life stories of ordinary families who, during the financial crisis and recession, sought assistance from 211info, a nonprofit service that helps connect individuals in need with available public and private resources. 

As these families faced dramatic unemployment and job loss from 

the financial crisis, as well as ongoing shifts in our economic landscape, they struggled to keep their heads above water, faced overVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
5 

whelming challenges, and confronted what to do with dwindling resources available to assist them. Since each is going to tell his or 

her own story, I am not going to give extensive introductory remarks, just a sentence or two. 

Diedre Melson worked through high school and went to college 

immediately after graduating. After a few years of college, she was 

no longer able to afford it and transferred to actual career school, 

where she obtained certifications in the medical field. Diedre was 

laid off from her job as a phlebotomist along with 1,500 other employees during the recession. 

John Cox is now facing a third year of unemployment and concerns about losing his home. He went to college and paid for it by 

working full-time and taking other jobs and worked continuously 

until October of 2008 when the recession created havoc and he was 

laid off. 

Pamela Thatcher taught preschool for 9 years to save up before 

starting a family, at which point she and her husband relied solely 

on her husband Brandon’s income. He has never been without 

work, had a good-paying job; however, he lost his job shortly after 

their second child was born. 

I will leave the other details to their own description of how they 

faced these challenges. 

Let me say simply that I hope the Subcommittee can hear the 

ground-up view of the state of our economy as it is playing out for 

so many American families and that we can think about the policies that will address these real challenges on the ground. 

We are also lucky to be joined by several experts on economic 

policy. 

Atif Mian is a professor of economics and public policy in the Department of Economics at the Woodrow Wilson School and JulisRabinowitz Center for Public Policy and Finance at Princeton University. He holds a bachelor’s degree in mathematics and a Ph.D. 

in economics from MIT. His recent work centers on understanding 

the origins of the global financial crisis, the political economy of 

Government intervention in financial markets, and the link between asset prices, household borrowing, and consumption. 

Amy Traub serves as senior policy analyst at the think tank 

Demos. She has a broad research focus on consumer debt, job quality and job creation, and policies to build the American middle 

class. Prior to Demos, Amy worked for Drum Major Institute for 

Public Policy, where she authored a number of influential reports, 

including ‘‘Principles for an Immigration Policy To Strengthen and 

Expand the American Middle Class’’. She has contributed essays 

and opinion articles to a variety of publications, and her book chapter, ‘‘A Strengthened Middle Class’’, appeared in ‘‘Thinking Big: 

Progressive Ideas for a New Era’’. 

Nick Hanauer is a partner in the venture capital firm Second Avenue Partners. One of the Pacific Northwest’s most successful entrepreneurs and investors, he has founded or financed dozens of 

companies across a broad range of industries, including manufacturing, retail, e-commerce, digital media, software, aerospace, and 

banking. 

How is all that possible in one lifetime? 

6 

Notably, he was one of the first investors in Amazon.com, served 

5 years as a board adviser, also founded—he was also CEO and 

then chairman of A—is it ‘‘quantitative’’? 

Mr. HANAUER. aQuantive. 

Chairman MERKLEY. Thank you—aQuantive, which was purchased by Microsoft in 2007. Mr. Hanauer is involved in numerous 

civic and philanthropic causes and coauthor of two books, ‘‘The 

True Patriot’’ and ‘‘The Gardens of Democracy’’, both national best 

sellers in politics. 

And now I would like to invite Senator Heller to introduce Mr. 

Hill. 

Senator HELLER. Thank you, Mr. Chairman. I want to welcome 

Steve Hill from my home State of Nevada and thank him for being 

here today. 

Mr. Hill is the director of the Governor’s Office of Economic Development. He is charged with stimulating business expansion and 

retention, encouraging entrepreneurialism, attracting new businesses, and facilitating community development in Nevada. No 

small task. 

Mr. Hill is founder of the Silver State Materials, a concrete, 

sand, and gravel supplier in the Las Vegas area since 1987. Silver 

State was purchased recently by CalPortland in 2008. 

Prior to accepting his appointment, Mr. Hill served as 

CalPortland’s senior vice president, responsible for Nevada and Arizona operations, as well as chairman of the Service1st Bank of Nevada, chairman of the Las Vegas Chamber of Commerce State Policy Task Force, and commissioner on the Nevada Commission on 

Economic Development. 

Mr. Hill is a past chairman of the Chamber’s Board of Trustees 

and the Boys and Girls Clubs of Las Vegas. He also served as 

chairman of Government Affairs for the Las Vegas Chamber, the 

Associated Builders and Contractors, and the Associated General 

Contractors. 

Mr. Hill, thank you for being here today and for giving us your 

testimony. Good to see you. 

Chairman MERKLEY. Thank you, Senator Heller, and welcome, 

Mr. Hill. 

And with that, we will begin our testimony, and, Ms. Melson, you 

are up first, and we will ask you to take about 5 minutes, but we 

will not be too strict on that time. 

STATEMENT OF DIEDRE MELSON, PORTLAND, OREGON, 

SUBJECT OF DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

Ms. MELSON. Good morning. Thank you, Chair Merkley and 

Ranking Member Heller—excuse me if I am a little nervous—and 

thank you to the Subcommittee. 

Chairman MERKLEY. You are among friends. 

[Laughter.] 

Ms. MELSON. Like Senator Merkley explained, I am an Oregon 

resident. If you saw the film ‘‘American Winter’’, I was starting at 

WorkSource at that time. I now work for 211. I have been working 

since I was 13 years old. Like he explained, I worked all through 

high school and went to college straight out of high school. 

7 

When I was not able to afford college, I decided that I needed to 

do something practical, so I was certified as a medical assistant 

cardiac technician and phlebotomist. Phlebotomy is my favorite 

part of that whole suite, and I was fortunate to move from Los Angeles to Oregon and get a dream job, and that was at the Alpha 

Plasma Center. 

Unfortunately, shortly after me being hired, there was a management issue, and we were taken over by another company. That 

company decided to close everything down, so like Senator Merkley 

explained, that resulted in 1,500 jobs lost. 

Of course, it always takes you time to dig yourself out of a hole, 

so I was unemployed and went out to try to search for employment, 

and the job market was really, really bad at the time. So when I 

was rehired, it took forever to try to dig myself out of debt. 

I have four children. I have a son who is 6 feet tall, he weighs 

280 pounds. He eats a whole bunch. 

[Laughter.] 

Ms. MELSON. He is a wrestler and football player. I am so proud 

to say that he went to the Reno World Champions this past April. 

He took fifth, and he is now an all-American wrestler. And so I am 

so excited and happy for him, but I also fear for his future. He is 

looking to go to college this coming fall, and because like you guys 

mentioned before with the increase in tuition, with the decrease in 

scholarships, I am fearful of how he is going to do that. I know that 

his prospects are limited if he does not further his education. That 

was why I went to college, because I felt like I needed that in order 

to secure a job. And even after I was not able to complete my degree, which was in communications, I went ahead and did something that I thought was practical. 

Setbacks are really hard. I have had to take advantage of social 

services. I am currently receiving SNAP benefits, and for those of 

you that do not know, that is the food stamp program, although I 

do work a full-time schedule. 

In Oregon our minimum wage is $8.90, and I think that that is 

probably one of the higher ones in the country. I make $13.52, and 

it is just not a living wage. It is not enough for me to support my 

four kids, especially with two of them being in college. My daughter 

is at a community college right now, but the expenses are still the 

same. Books are high, really high, and so it is really difficult. 

I want people to know, like I said before, I work for 211 now, and 

I speak to people every day who are in the same situation, if not 

worse, than what I am in. I talk to people who—I literally talked 

to a lady not too long ago who called me from work, and her water 

had been shut off. Her 13-year-old daughter was the one who discovered it. She was at home by herself, so she was very afraid, and 

the lady, she calls me, and she is in tears. And I told her, you 

know, ‘‘You have to leave work, and you have to go so that you can 

get your water reconnected.’’ She had been making, you know, 

small payments, but—and like I said, she is employed full-time. So 

she is not sitting around wanting a handout. She is just in over her 

head, just like so many of us are. 

I had to, like, literally kind of pull teeth for her to leave her job 

because, of course, when she leaves work, then she is missing 

8 

money. But if she does not leave work, then she has no water. So 

it is a double-edged sword. It is kind of a lose-lose situation. 

I talk to people like that every day who are humiliated to have 

to go and ask for services, myself included. I never expected to 

work a full-time schedule and still depend on rental assistance, to 

still depend on SNAP benefits, to still depend on those services 

that you think are reserved for those who are simply unemployed. 

I know the media, they exploit that 1 or 2 percent that may be 

taking advantage of the system, but the reality is that other 98 

percent, they do not want to be there. 

Our former CEO, Liesl Wendt, has moved over to the Department of Human Services, and she sends us over reports sometimes, 

and she sent over a report that said prospectively, in 2016, that 

1,000 families per month will be cutoff the TANF program. And the 

TANF program is Temporary Assistance for Needy Families. 

What they have in place now is 60 months lifetime, and that is 

a little unrealistic because you never know what life is going to 

deal you, and you never know when you may need those services. 

But the way they have it set up now is that after that 60-month 

period, if the parents have not found employment, then they are 

cutoff of the system but their children still receive the benefits that 

they need. 

The potential in 2016 is that the entire family is cutoff, so there 

is no more assistance. There is no medical, there is no SNAP benefits. They are completely cutoff. And my question is: What happens 

at that time? Because, realistically, we do not have 1,000 jobs to 

offer people, so what happens at that time? 

Also at WorkSource I had the opportunity to work with people 

like John who were in the warehouse field, production field, construction. They worked those jobs 15, 20 years and felt like they 

would retire from those jobs. Now they are in their mid-50s, and 

they cannot find employment. It is virtually impossible. They are 

competing against the new technology. They are not familiar with 

the Internet. They are trying to fill out online applications, and it 

is scary. It is scary. And I fear the same thing because in less than 

10 years I will be there. And so what happens at that time? 

So I just would really, really like for people to understand that 

people who are taking advantage of this a lot of the times are not 

those people that we see in the media, those greedy people who are 

wanting to take advantage of the system. These are people who are 

really in a financial crisis. We are the working poor. We are people 

who get up every day, and we try to pay our fair share and we try 

to pay our dues. But despite what we do, despite our efforts, we 

are sinking. 

So thank you guys again for allowing me a moment. 

Chairman MERKLEY. Thank you for speaking really from your 

own personal front-line experience as well as the folks you speak 

to every day on 211info who are challenged very similarly. Thank 

you. 

Mr. Cox. 

9 

STATEMENT OF JOHN COX, NEWBERG, OREGON, SUBJECT OF 

DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

Mr. COX. Hi, I am John Cox, and I appreciate the opportunity 

to come and meet with you folks. I just want to make sure people 

understand. I am just a representative of millions of people around 

the United States that are in similar situations as we are. 

Senator Heller, Nevada, I am very aware of the employment 

issues over there. My hat goes off to you. 

And, anyway, just to kind of give you a little background, you 

know, my childhood, I was always raised to believe in the American Dream. My grandparents, my parents, church, community— 

everybody, you know, talked about how great the United States 

was and what the American Dream was. And, you know, the American Dream mantra was just driven into me and I still believe in 

it. I really do. 

You know, I was raised, I always heard, you know, ‘‘Work hard.’’ 

You know, ‘‘If you work hard, you will have no worries.’’ You know, 

‘‘Get an education. If you get an education, you will never have to 

worry about a job ever again.’’ You know, ‘‘You are going to be in 

the middle class,’’ all that. You know, ‘‘Save money for the future, 

you know, in case something comes up you have a little nest egg 

to fall back on.’’ 

My family also was very adamant about volunteering in the community, you know, giving a little of yourself back. It was not just 

a slogan. It was, you know, ‘‘Help your community, help your 

neighbor.’’ 

You know, and then my father’s famous words were, ‘‘Take care 

of your job and the job will take care of you.’’ You know, I always 

believed that. I do not know how many times I heard that. You 

know, I knew the rules, I played by the rules that I thought were 

laid out for me. I took seriously the expectations placed on me by 

the Government and the community and my family. 

Working hard was not a choice with me. I was raised—as a kid, 

I was raised on a cattle ranch. And from the time I could walk, almost, it seemed like, I was having to get up at 4 o’clock in the 

morning and go out and feed the cattle in the winter. And that was 

not going out in the barn. That was actually out in open pastures. 

Anyway, you know, in the springtime, when it was what we 

called ‘‘calving season,’’ my brother and my dad and I, we would 

take shifts during the night to go check on the cattle during calving 

season, you know, make sure that they were not having any problems. And, you know, my—unlike a lot of people, my brother, similar I guess, my brother and I, we used to—we not only fought over 

whose turn it was to wash the dishes, it was also whose turn was 

it to milk the family milk cow. And, you know, there was always 

work to be done. 

My father, he is college educated, and it was instilled in me that 

it was not a question of whether you are going to go to college or 

not. It was, ‘‘You are going to college.’’ I funded myself through 

school. I did not take out any student loans or anything else. I took 

on jobs like—well, I went up into Alaska commercial fishing, even 

going during school. I even brushed volcanic ash out of parking lots 

when Mt. St. Helen’s blew back in 1980, I think somewhere around 

10 

there, and, anyway, I had a job going around parking lots with the 

push broom and making money that way. 

So, you know, it is not that I am afraid of work at all. I would 

rather be at a job right now than here, although I am thankful to 

be able to speak. But I am kind of similar to Diedre. I have not 

been without a job since I was about 12 years old until October 

2008. The longest I think I had ever been going without a job was 

a week, and, anyway, you know, the mantra again was, you know, 

‘‘You take care of the job and the job will take care of you.’’ And, 

you know, again—but, anyway, about 12 years ago, I invested in 

a house for my family, and I had saved, oh, about $35,000 in savings, kind of like an emergency fund. I had a 401(k) going. You 

know, I was on top of the world, I thought. I was making $60,000 

a year salary as a cost accountant. And, anyways, you know, when 

I was laid off in October 2008, I was not too worried about getting 

another job. You know, it was like, well, you know, I always had 

one so, you know, it is not going to be too much of a problem. So 

a month went by, and I just kind of said, ‘‘Well, you know, it is 

just right around the corner.’’ You know, keep a positive attitude. 

And pretty soon 6 months go by, and, you know, now you are into 

that dreaded—trying to get rehired after being 6 months unemployed. 

And so, anyway, I was being able to supplement my house payments and all my bills. I was keeping current with all my bills, my 

mortgage and everything, out of this savings account I had. I had 

over $35,000 in savings. Anyway, I exhausted that, and then I 

pulled out a 401(k), and, you know, after all the early withdrawal 

penalties and blah, blah, blah, it gave me another $35,000, and I 

continued to keep up on my payments, because I had a great credit 

rating. You know, I cannot say excellent because, you know, very 

seldom have I seen anybody have an excellent credit rating. But, 

anyway, so I kept up on those, and then after about a year-anda-half or so, I started seeing the handwriting on the wall where, 

you know, my funds are getting depleted. Finally, after a year and 

a half, I applied for unemployment. That was the first time I even 

applied for unemployment, because people on unemployment, that 

was not me. You know, that was the other people. 

And, you know, so anyway, like I say, after, you know, that 

dreaded 6-month unemployment, employers for some reason, they 

will not look at you. They say you are outdated or something like 

that, you know. You know, they are not anxious to hire a person 

of my age, anyway, it seems like. Right now, Wells Fargo is in the 

process of trying to foreclose on my home, you know, and I have 

been getting some awfully, awfully good help from people trying to 

help me save my house. This house is not for me. I have a Down’s 

syndrome boy. He is 12 years old. And that was one of my intents 

of getting this house 12 years ago. It was not for me. It was kind 

of like a nest egg for my boy in the future for when I was not 

around. That is what drives me even today, is not looking out for 

myself so much as I am looking out for my kid. 

Anyway, I still do not sit—you know, I do not sit on my hands. 

I still am putting out job applications left and right trying to find 

a job. I just, you know, nothing has come to fruition yet. I have 

even looked at minimum wage jobs, and it is really difficult beVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
11 

cause, you know, if it was just me, I would have no problem working for minimum wage. But when you work for minimum wage and 

you have to pay for day care or a baby sitter for your kid, it is just 

a wash. You know, you cannot afford to work and pay a baby sitter 

and expect to be able to live comfortably. 

Right now, the jobs I have been looking at in the cost accountant area and everything that used to pay $60,000, right now you are 

lucky if you can find a similar job out there for $35,000. 

Chairman MERKLEY. Mr. Cox, on that note, I may have to stop 

you because the vote is underway, and we are going to miss it if 

we do not adjourn. 

Mr. COX. Oh, I am sorry. 

Chairman MERKLEY. And I am sorry to interrupt your story, but 

the last point you are making is that challenge of living-wage jobs 

disappearing and much lower wage jobs reappearing. 

Mr. COX. Sure. 

Chairman MERKLEY. So we have three votes lined up, so we will 

be gone for a while. And then the full Committee will convene to 

mark up a bill. And then as soon as they are done—and we expect 

that to be about 11:10 or so—we will reconvene this Subcommittee 

and continue, and we will ask Pamela to kick off the next session. 

So thank you all, and I will see you a few minutes down the 

road. 

[Whereupon, at 10:12 a.m., the Subcommittee recessed and reconvened at 11:53 a.m.] 

Chairman MERKLEY. I call the Subcommittee back into session, 

and we were just completing Mr. Cox’s testimony, and thank you 

very much, and we are going to proceed with Ms. Pamela Thatcher. 

And I am going to ask folks to try to stick to the 5 minutes because, due to the craziness of the Senate schedule, our time has 

been substantially compressed. 

First we have to have the completion of the ceremonial passing 

of the water. 

[Laughter.] 

Chairman MERKLEY. Thank you. Ms. Thatcher. 

STATEMENT OF PAMELA THATCHER, TUALATIN, OREGON, 

SUBJECT OF DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

Ms. THATCHER. Chairman Merkley, Ranking Member Heller, and 

Members of the Subcommittee, I just want to thank you for giving 

me this opportunity to testify before you and share my experience. 

I never would have imagined that I would have been in the position that I have been in these last couple of months. My husband, 

in the fall of 2011, lost his job, and the savings we did have in our 

account grew thin. The decision to reach out for help was incredibly 

difficult for my husband and me. I definitely had the mom survival 

mode that kicked in. I have two young children. Right now my oldest is 31⁄2 and my youngest is 11⁄2. So when that survival mom 

mode kicked in, I knew that I had to do anything and everything 

in my power to take care of my children. And for most parents, almost all parents would do that. 

So accepting assistance was very hard. Me and my husband, we 

had the American Dream. We dreamed that we would work hard, 

go to college, plan to have a family, have that white picket fence, 

12 

have that job that you have had for years, retire—everything that 

I think all of us as children figured that that would happen. And 

so we got married in 2008. We planned our family in stages. We 

had our first child, then our second child. I taught preschool for 9 

years. When my first child was born—I think he was about a 

year—my husband was doing fantastic in his job. We were thinking 

that if I became a stay-at-home mom that we were safe, secure. We 

were middle-class families working hard, and we had everything 

ahead of us. We knew that we would be fine. 

And that is exactly not what happened. My husband, when he 

lost his job, it was like the carpet was ripped right out under us. 

Our dream kind of went down. But we still had that hope. We still 

thought we were going to get through this. We did not know that 

it would be months, it would be months and months. We figured 

since he always worked, he always had a job, we always had that 

strength in us that we would never ask for assistance, we can do 

it on our own type thing. 

We did not find ourselves in this situation, and, unfortunately, 

we were. We had to ask to get food stamps. We had to be on TANF. 

I had to go on WIC. It is heartbreaking when you tell yourself, ‘‘I 

will never, ever do that,’’ and you have this stigma on these people 

that they are using it and they are—what is the word I am looking 

for? They bred abuse to the system, and that is what you think 

until you are in it. You have no idea. You are looking around here 

seeing these families that have worked hard their entire lives, and 

they are both working, mom and dad, and they have children, and 

they cannot survive. They are drowning. 

So in this situation, we did everything we can. We cut back on 

every possible expense, and when those were gone, we had to go— 

we had to ask for assistance. Being in ‘‘American Winter’’ opened 

my eyes, and I hope it opens up millions of people’s eyes. I hope 

our statements here let other people open their eyes to really how 

bad the economy is. The middle class? What middle class? It is 

hard-working families. The middle class is falling. It truly is. 

One woman at the grocery store came up to me. I will never forget this. It was after the film aired on HBO, and she had said, 

‘‘You are that lady in that film.’’ And I said, ‘‘I am.’’ She grabbed 

my hand and held it, and she says, ‘‘You know what? I thought I 

was alone. I thought that when my husband lost his job I was all 

alone, and seeing this had made me feel stronger, that I can survive, that I am not alone, so thank you.’’ And that really touched 

me. 

My husband did finally get a job. Yay. Unfortunately, it is half 

of what he was making, so we are still struggling and we are still 

on assistance, unfortunately. But I just hope that this country, 

since it is going down the wrong path, that we can get back on the 

same path again. I really do, because it is for the people. 

I just wanted to thank everyone here again for their time, and 

I know we do not have much time. I just wanted to thank you guys 

so much. Thank you. 

Chairman MERKLEY. Thank you very much, Ms. Thatcher, for 

sharing your story. 

Dr. Mian. 

13 

STATEMENT OF ATIF MIAN, PROFESSOR OF ECONOMICS AND 

PUBLIC POLICY, PRINCETON UNIVERSITY 

Mr. MIAN. Good morning, and thank you, Senator Merkley, for 

having me. It is a great honor and privilege. 

I want to focus my attention on the rules of the game in our financial system and how those rules of the game impact the middle 

class and the broader economy. 

In particular, I will just give the example of mortgage contracts, 

the way they have been written in the past and how they impacted 

the middle class and the economy. 

I can borrow the example of Mr. Cox, who gave testimony before 

us, to illustrate my first point, which is that when the decline in 

house prices happened starting in 2007–08, people like Mr. Cox, 

the middle class, had most of their wealth in their homes. They lost 

all of that wealth, but that was not all, as you heard in the testimony as well. Many of them continued to use their retirement income to pay off the debt that was really on a house that did not 

belong to them anymore because they were underwater. That is the 

first impact of the financial crisis, and it is a direct consequence 

of the way we wrote down those mortgage contracts. I will come 

back to that in terms of smarter policy choices toward the end. 

The net impact of that on the American middle class has been 

devastating, and in my written testimony, if you refer to Chart 2, 

you will see the enormous impact it has had in increasing wealth 

inequality in the U.S. It is really remarkable. 

The other important thing is that it is not just a question of middle class. What happens to middle class, because we live in an 

interdependent ecosystem, has a wider impact on the rest of the 

economy through two key channels in the mortgage context. One 

is the foreclosures that are imposed as a result of homeowners 

being underwater devastate home ownership across the country 

due to the fall in house prices that results from foreclosures. That 

is the foreclosure externality. 

The other negative impact is the aggregate demand effect. When 

people lose wealth on their homes as they become underwater, they 

cut back on their spending drastically, and it is the middle America 

that has the highest propensity to consume, to spend. So when 

their wealth goes down, they are the ones that restrict their spending the most. The result is a fall in aggregate demand, which does 

not just hurt the people who are cutting back on spending. The 

other important point is that it impacts everyone in the economy 

because the stuff they buy, other people’s jobs depend on it. And 

so people in Indiana, for example, get laid off because people in 

California are not buying enough RVs or enough automobiles. 

The bottom line is that it is a result of the contracts that we decided to write down, the mortgage contract, that is, that leads to 

this destruction of wealth of middle class as well as the decline in 

aggregate demand and the overall economy. 

So what can we do to rectify this situation, to prevent it from 

happening again? This is where I am going to make my second key 

point, that we need to have smarter contracts and smarter policy. 

And, in particular, in my testimony I have laid out the details of 

what I refer to as ‘‘the shared responsibility mortgages.’’ These 

14 

mortgages are very similar to your standard 30-year fixed-rate 

mortgages, exactly the same, with two important differences. 

The first one is that these mortgages offer downside protection 

for the homeowner based on her local house price index that is easily available these days. Under this protection, the standard 30- 

year fixed-rate mortgage payment, for example, will decline by X 

percent if the local house price index declines by X percent relative 

to when the mortgage was originally issued. 

Now, think of—it is very easy to implement, and think about 

what would have happened. There would be no such thing as an 

underwater homeowner, no foreclosures, and we would have prevented the negative externalities that I talked about. 

Now, one cost of doing this is that the lender is going to charge 

more up front for the protection that they are going to offer. So for 

that, I am going to offer a second suggestion, which is that we add 

to the mortgage contract a 5-percent net capital gain that will go 

to the lender whenever the homeowner chooses to sell their house 

or refinance their mortgage. Given the average appreciation in 

house prices and the average volatility in house price growth in the 

U.S., if you do the math, one can show that the 5-percent net capital gain sharing with the lender completely neutralizes the cost of 

the downside protection that the lender offers. And so we come 

back to the same cost for mortgages as we have under the current 

system, but, importantly, this suggestion gives us the opportunity 

to share risks equally across the population. It protects the middle 

class and it protects our overall economy and our overall labor market. 

Let me just end by pointing out that the solution that I am proposing, if we had this system in 2007—and I have worked through 

the numbers—one can show that we would have largely avoided 

the Great Recession itself. In fact, if you think about the details, 

the proposal is entirely market based. There is no subsidy from the 

taxpayers involved ever. In fact, the shared responsibility mortgages help reduce budget deficits in the long run because they limit 

the need for countercyclical fiscal policy in the first place. 

These mortgages give the lender a direct interest in worrying 

about potential bubbles, so that automatically imposes a safety 

valve in the system so the lenders will lean against the wind, so 

to speak, if they think they are in a bubble, because they are offering the downside protection so they will raise the interest rate or 

the cost of a mortgage if they think the housing market is in a bubble. So not only do these mortgages reduce the negative effects of 

the housing bubble, but they also reduce the likelihood of those 

bubbles from happening in the first place. 

Thank you very much. 

Chairman MERKLEY. Thank you very much, Doctor. 

Ms. Traub. 

STATEMENT OF AMY TRAUB, SENIOR POLICY ANALYST, 

DEMOS 

Ms. TRAUB. Yes, thank you, Senator Merkley and Senators Warren and Heller, for this opportunity. My name is Amy Traub. I am 

a senior policy analyst at Demos. We are public policy organization 

15 

working for an America where we all have an equal say in our democracy and an equal chance in our economy. 

Widely shared middle-class prosperity has made America the 

most hopeful and dynamic country on Earth, but the creation of the 

American middle class in the decades following World War II was 

not an accident. It was the result of deliberate public policy, and 

it required business, Government, and workers to all contribute to 

a shared social contract. 

But over the past 40 years, that social contract has frayed even 

as it was expanded to include more Americans that were formerly 

excluded, including women and people of color. Government and 

business have become less committed to ensuring widespread 

gains, and individuals are shouldering virtually the entire burden. 

This go-it-alone economic system is creating record inequality, and 

it has stalled our engine of mobility for the next generation. 

In the years after World War II, as economic growth and productivity increased, the workers contributing to that prosperity saw 

commensurate gains in wages. However, in the late 1970s, that 

connection began to break. While productivity increased 80.4 percent in the three decades between 1979 and 2011, the inflation-adjusted wages of the typical worker grew just 6 percent during that 

time period. What became of those economic gains? 

A rising share of the Nation’s gross domestic product is flowing 

to corporate profits rather than wages, and a larger share of overall 

income is going to the highest paid 1 percent of earners. Between 

2009 and 2011, the incomes of the highest paid 1 percent of Americans grew by 11.2 percent while the incomes of the rest of Americans actually declined by 0.4 percent. 

A number of scholars have investigated why economic gains are 

now so concentrated. Changes to the Tax Code that benefit the 

wealthy, the declining power of the minimum wage and other 

workplace protections, trade policy, and the weakening of organized 

labor and the laws that protect the right to organize are among the 

causes. All of these trends were shaped by public policy and can 

be changed by public policy. 

In other cases, such as changing families and our increasingly diverse society, public policy has simply failed to keep pace with who 

Americans now are and how we now live. The result is that the 

traditional routes to the middle class have become more difficult to 

travel, and security has eroded for those already in the middle 

class, as we have heard today. Many jobs do not pay enough to 

cover basic living expenses, much less allow workers to save money 

and build assets for the future. 

A college education is now increasingly the price of entry to the 

middle class, yet policy makers have allowed it to be priced out of 

reach of most Americans. Tuition at public 4-year schools has more 

than tripled in the past three decades, rising faster than either inflation or growth in family income. A major factor in the rise of 

public college costs is declining State support for higher education, 

which our research shows has dropped by 26 percent in 20 years. 

Meanwhile, Federal support has shifted from majority grants to 

majority loans, and the result is a crisis in access and completion. 

More than half of students drop out, primarily for financial reasons. Two out of every three students must now borrow to attend 

16 

college so that Americans now owe more than $1 trillion in student 

loan debt. 

Home equity and savings nest eggs can provide an important 

buffer against hard times and can increase household economic stability. Yet in recent decades, financial deregulation, wild speculation in securities, and the aggressive marketing of toxic loans 

preyed on Americans’ aspirations to build assets. The economic 

crash that followed decimated the wealth of American families, 

causing more than 2.7 million homeowners to lose their single largest asset to foreclosure. 

This preventable tragedy has particularly wounded middle-class 

communities of color. Latino families lost an average of 66 percent 

of their wealth; African Americans, 53 percent. Instead of saving 

for the future, millions of working and middle-class Americans are 

now struggling just to service their debts. Demos’ research shows 

that 40 percent of low- and middle-income households carrying 

credit card rely on their cards to pay basic living expenses. Credit 

cards are also widely used to pay medical bills and to cope with 

spells of unemployment. In effect, this is a high-interest way to 

make up for gaps in the public safety net. 

At the same time, half of working Americans currently have no 

retirement savings outside of Social Security. Here, too, we have 

shifted away from a system in which Government and employers 

as well as workers contributed to middle-class retirement security. 

We have now gone toward a go-it-alone policy of 401(k)s, which put 

the risk of retirement entirely on the individual worker. 

My written testimony offers a wide range of policy recommendations, and many of these policies are detailed further in our report, 

‘‘Millions to the Middle,’’ which I would be very pleased to share 

with the Subcommittee. But I just want to end by saying a few 

words about why these policies, many of which are so strongly supported by the American public, nevertheless seem so difficult to 

enact. 

In Demos’ recent study, ‘‘Stacked Deck’’, we have collected evidence of a distortion in policy outcomes that political scientist Martin Gilens describes this way: The preferences of the vast majority 

of Americans appear to have essentially no impact on which policy 

the Government does or does not adopt. This is because the affluent are overrepresented among voters, Beltway influencers, and 

campaign donors. This unequal political influence is particularly 

consequential because of significant differences in policy preferences by income level. The general public is far more open than 

the wealthy to a variety of policies that would help restore the middle class, including raising the minimum wage, providing more 

generous unemployment benefits, and using the power of the Government to directly create jobs. 

Growing economic inequality is intertwined with growing political inequality, and to strengthen and expand the middle class and 

reclaim the American Dream, it is really imperative that we address both. 

Thank you so much. 

Chairman MERKLEY. Thank you very much, and thank you for 

your offer to provide the report. ‘‘Millions to the Middle Class’’, is 

that the name? 

17 

Ms. TRAUB. That is the name. I do have some copies over on the 

table. 

Chairman MERKLEY. Great. I look forward to looking at it. Thank 

you. 

Mr. Hanauer. 

STATEMENT OF NICK HANAUER, SECOND AVENUE PARTNERS 

Mr. HANAUER. Chairman Merkley, Senators Heller and Warren, 

thank you for being here and thank you for inviting me. 

For 30 years, Americans on the right and left have accepted a 

particular explanation for the origins of prosperity in capitalist 

economies, and that is that rich business people like myself are 

‘‘job creators,’’ and if the taxes on us or on our companies go up, 

fewer jobs will be created; conversely, that the lower our taxes are, 

the more jobs we will create and the more general prosperity we 

will have. 

Most Americans and many people in this room are certain that 

these claims are true. But sometimes the ideas we know to be true 

are dead wrong. 

For thousands of years, people were certain, positive in fact, that 

Earth was at the center of the universe. It is not. And people who 

believe that it is have a very hard time doing astronomy. 

My argument today is this: In the same way that it is a fact that 

the Sun, not the Earth, is the center of the solar system, it is also 

a fact that the middle class, not rich business people like me, are 

the center of America’s economy. I will argue here that prosperity 

in capitalist economies never trickles down from the top. Prosperity 

is built from the middle out. 

As an entrepreneur and investor, I have started or helped start 

dozens of businesses across a range of industries, and I have hired 

lots of people initially. But if no one could have afforded to buy 

what we had to sell, all my businesses and every one of those jobs 

would have evaporated. 

That is why I am so sure that rich business people like me do 

not create jobs, nor do businesses, large or small. What does lead 

to more employment is a ‘‘circle of life’’ like feedback loop between 

businesses and customers. And only consumers can set in motion 

this virtuous cycle of increasing demand and hiring. 

That is why the real job creators in America are middle-class 

consumers. The more money they have and the more they can buy, 

the more people like me have to hire to meet demand. 

So when business people like me take credit for creating jobs, it 

is a little like a squirrel taking credit for creating evolution. In fact, 

it is the other way around. 

Anyone who has ever run a business knows that hiring more people is a capitalist’s course of last resort. It is what we do if and 

only if rising customer demand requires it; further, that the goal 

of every business—profit—is largely a measure of our relative ability to not create jobs relative to our competitors. In this sense, calling ourselves ‘‘job creators’’ is not just inaccurate; it is disingenuous. 

That is why our current policies are so upside down. When you 

have a tax system in which most of the exemptions and the lowest 

18 

rates benefit the richest, all in the name of job creation, all that 

happens is that the rich get richer. 

Since 1980 the share of income for the richest 1 percent of Americans has tripled while our effective tax rates have fallen by approximately 50 percent. 

If it were true that lower tax rates and more wealth for the 

wealthy would lead to more job creation, then today we would be 

drowning in jobs. 

If it were true that more profit for corporations or lower tax rates 

for corporations led to more job creation, then it could not also be 

true that both corporate profits and unemployment and underemployment are at 50-year highs. 

There can never be enough super-rich Americans like me to 

power a great economy. I earn literally a thousand times the median wage, but I do not buy a thousand times as much stuff. My 

family owns three cars, not 3,000. Like most American men, I buy 

a few pairs of pants and shirts a year. My family goes out to eat 

occasionally, like most American families. 

I cannot buy enough of anything to make up for the fact that millions of unemployed or underemployed Americans cannot buy any 

new clothes or cars or enjoy any meals out, or to make up for the 

decreasing consumption of the vast majority of American families 

that are barely squeaking by, buried by spiraling costs and trapped 

by stagnating or declining wages. 

This is why the fast increasing inequality in our society is killing 

our economy. When most of the money in the economy ends up in 

just a few hands, it strangles consumption and creates a death spiral of falling demand. 

Significant privileges have come to capitalists like me for being 

perceived as ‘‘job creators’’ at the center of the economic universe, 

and the language and metaphors we use to defend the current arrangements are telling. It is a small step from ‘‘job creator’’ to ‘‘The 

Creator.’’ When someone like me calls himself a ‘‘job creator,’’ it 

sounds like we are describing the economy. What we are actually 

doing is making a claim on status and privileges, such as the 

amazing differential between the 15- to 20-percent tax rate on capital gains, dividends, and carried interest that capitalists get and 

the 39-percent top marginal rate on work that ordinary Americans 

pay. 

So we have had it backwards for 30 years. Rich business people 

like me do not create jobs. Jobs are a consequence of an 

ecosystemic feedback loop animated by middle-class consumers, 

and when they thrive, businesses grow and hire, and owners profit—in a virtuous cycle of increasing returns that benefits everyone. 

I would like to finish quickly with a story. 

About 500 years ago, Copernicus and his pal Galileo came along 

and proved definitively that the Earth was not the center of the 

solar system. A great achievement, but you may recall it was extremely unpopular with the political leaders at the time. 

Remember that Galileo invented the telescope so you could see, 

with your own eyes, that it was a fact. But the leaders of the time 

were not much interested because if Earth was not the center of 

the solar system, then it was diminished; and if Earth was diminished, then so were they. And that was the only fact that they 

19 

cared about, so they told Galileo to stick his telescope where the 

Sun did not shine, and they put him in jail for the rest of his life 

and, by so doing, put themselves on the wrong side of history and 

the fact forever. 

Oddly, 500 years later, we are having a similar argument about 

who or what is at the center of the economic universe—a few rich 

guys like me or the American middle class. 

But as sure as the Sun is the center of our solar system, the middle class is the center of our economy. If we care about building a 

fast-growing economy that provides opportunity for every American, then me must enact policies that build it from the middle out, 

not the top down. 

Let us not forget the fundamental law of capitalism: When workers have no money, businesses have no customers. Tax the wealthy 

and corporations—as we once did in this country—and invest that 

money in the middle class—as we once did in this country. Raise 

the minimum wage to $15. Those polices will not be just great for 

the middle class, they will be great for the poor, for businesses 

large and small, and the rich. 

Thank you. 

Chairman MERKLEY. Thank you, Mr. Hanauer. 

Mr. Hill. 

STATEMENT OF STEVEN D. HILL, DIRECTOR, NEVADA 

GOVERNOR’S OFFICE OF ECONOMIC DEVELOPMENT 

Mr. HILL. Chairman Merkley, Ranking Member Heller, Senator 

Warren, thank you for having this hearing and for allowing me to 

participate. My name is Steve Hill. I am the director of the Nevada 

Governor’s Office of Economic Development. I think I bring a couple of maybe distinct perspectives on the topic of the economy and 

the middle class. 

Nevada has been at the epicenter of one of the biggest booms 

since my 25 years in Las Vegas, has represented—the first 20 

years were some of the biggest growth the U.S. has ever seen. And 

the last 4 or 5 years have really been the epicenter of the housing 

crisis, and it is the industry that I was in before taking this job 

about 18 months ago. 

I started a concrete company in 1987. In 19 of the first 20 years 

I was in that business, we led the Nation in job growth, in population growth, and it was truly a place where the middle class 

could get ahead, largely because there was so much work, so much 

competition for employment that it was a great place for my employees and for the middle class throughout Nevada. 

We reached a point where the construction industry was 11.5 

percent of the employment in the State when the national average 

for the construction industry is five. One of the lessons that we 

have learned—and I hope we exercise as we move forward—is that 

doing things that are unsustainable causes a lot of pain once the 

unsustainability goes away. 

Our construction employment is now back to about 4.5 percent 

of our employment in the State, and it is likely to stay roughly in 

that neighborhood moving forward. 

Approximately 100,000 construction workers lost their jobs, so 

they were hit with a one-two punch of a housing crisis, the value 

20 

of their homes dropping while they were losing their jobs. And they 

are faced with a situation where they are going to probably need 

to find employment in a different field. 

So Nevada looked at this and decided that we needed a different 

approach, and so we have adopted that different approach. We are 

looking at this on a parallel path of trying to get the 150,000 workers in Nevada who have lost their jobs back to work as quickly as 

possible while building a broader economy in the State. We certainly want to do that in conjunction with the gaming and mining 

industries, which have historically been Nevada’s predominant industries, what we are most known for. But we want the diversity 

that causes stability, and we also want to look at improving the 

quality of jobs and the pay that goes along with that for the citizens of Nevada. And that has started to work. 

We have focused on some targeted opportunities in sectors—in 

energy, in aerospace, in logistics, just to name a couple; recently 

passed legislation to eliminate coal and to focus on renewable energy, which Nevada has in vast quantities. Partly, potentially, due 

to that legislation and partly due to the future prospects in Nevada, Warren Buffett and Berkshire Hathaway recently bought the 

monopoly energy company in Nevada, so I think that speaks to the 

prospects for Nevada moving forward. The ‘‘Oracle of Omaha’’ may 

become the ‘‘Nostradamus of Nevada.’’ 

We have focused on the FAA’s effort to test unmanned aerial vehicles and integrate those vehicles into the national air space. It 

is an opportunity that Nevada presents great assets for and an opportunity for us to get into robotics, which we think would provide 

great jobs moving forward. 

We are looking at broadening from a consumption-based market 

to an investment and export market. We think that is important 

for Nevada; we think that is important for the country. So that involves advanced manufacturing, research, and a commitment to research. We just funded during our last legislative session what we 

call the ‘‘Knowledge Fund,’’ which ties our economic development 

effort to the university system to commercialize research and innovation. We have started to reach out more robustly to countries 

where we have population based in Nevada that already has connections, so we have a strong Hispanic, a strong Asian population 

in Nevada, so we are reaching out to Latin America and Asia. 

I will just end by saying that workforce development is a big part 

of our economic development effort and a big part of mobility in the 

middle class, so we will continue to focus on that as well. But 

thank you for allowing me the time today. 

Chairman MERKLEY. Thank you very much, Mr. Hill. We are producing a lot of solar panels in Oregon, and we would like to send 

them down to Nevada. 

Senator HELLER. We will take them. 

Chairman MERKLEY. We are going to try a little bit different procedure today in which, rather than do 5 minutes each, we are going 

to start with each doing questioning and just keep going in a circle. 

Senator Heller will start; Senator Warren will continue; I will do 

the third question. Maybe we will create a little more interaction 

among the points each of us making and the points you all are 

making. 

21 

With that, Senator Heller. 

Senator HELLER. Thank you very much, Mr. Chairman. This 

ought to be an interesting experiment in itself. 

I want to thank those who testified, the three that are here 

today, for your background, your experience, and we are all very 

understanding of the concerns that you do have. 

Ms. Melson, congratulations with your son. 

Ms. MELSON. Thank you. 

Senator HELLER. That is a big event in Reno, and for him to 

come in fifth, that is pretty incredible. And for that, tell him congratulations. That is a huge honor in his case. I also want to thank 

the other two. 

I think what I hear, what I think I am hearing in the overall testimony from the three of you is that for generations we had a country that said if you worked hard, you would succeed. That is what 

you were told by your parents, and that is what you told your own 

kids: If you work hard, you will succeed. If you play by the rules, 

you will be rewarded. And if you do not, there will be consequences. 

And for generations, that was true. And we are seeing now a generation of Americans where that is not true, and that is why we 

are seeing America’s struggles today. 

My question is for Mr. Hill, but it is based on something that Mr. 

Hanauer in your testimony—your testimony does confuse me a little bit, I will say that. And I do not mean that with any disrespect, 

but to Mr. Hill, whose job is to create jobs in Nevada, appointed 

by the Governor, if I am not oversimplifying, your testimony, Mr. 

Hanauer, but the concern is—in fact, we just ended a legislative 

session this week. But if I am not mistaken, you believe that by 

raising taxes we can create jobs. Mr. Hill, do you agree with that? 

Mr. HILL. Senator Heller, I do not, and certainly not in and of 

itself. And part of the reason that I say that is we are in a competitive situation. Whether that is Nevada, whether that is the United 

States, not everyone will take that same approach. The businesses 

that we talk to are bottom-line driven and we do have to be competitive in order to attract them, or they will locate elsewhere. And 

so Nevada is looking in every way possible to try and be a competitive place so that the citizens there will have those opportunities. 

That is not just tax based, and it is certainly not just regulatory 

based. We need to provide a workforce that allows the business 

case for that business to want to do business in Nevada. The location, the logistic opportunities, the infrastructure that we have, 

there are many aspects of that. And every business will look at 

that differently. 

Demand is certainly a part of that business case, so we have to 

look at the demand side as well as the cost side. But in and of 

itself, I would not. 

Senator HELLER. Thank you. 

Senator WARREN. Thank you, Mr. Chairman. I want to thank 

Ms. Melson and Mr. Cox and Ms. Thatcher for being here. I think 

you said the most critical thing. You are not alone. And I commend 

your courage and your dedication that you will stand up and talk 

about what happened in your family so that other families that are 

going through the same thing have an opportunity to say, ‘‘It is not 

22 

just me. It is something larger; it is something bigger.’’ And so I 

just want to say thank you very much for doing this. 

I also want to say to Dr. Mian, to Ms. Traub, to Mr. Hanauer, 

and Mr. Hill, thank you for the work you do that talks about these 

powerful forces at work in our country and the importance of getting our policies right so that we are growing a middle class, very 

much as you say, Mr. Hanauer, growing from the middle out. That 

is the key to our economy. It is also the source of our identity, who 

we are as a people, what we are as a country. It is about our opportunity. It is about how we build. 

What you have talked about today hit on the things that just 

keep pounding on America’s middle class: what has happened on 

jobs, flat wages, lost jobs, what has happened on housing, high 

housing costs, and then getting slammed in a reversed market, and 

people still getting caught then in upside down mortgages. 

We could have talked about rising health care costs and how that 

puts another squeeze on the family and the costs of being able to 

get your children educated, whether we are talking about preschool 

or whether we are talking about postsecondary education. It is all 

out there. The consequences are clear. We have got more families 

living on the edge. They cannot afford to save for an emergency, 

certainly cannot afford to save for their retirements. It is a 

hollowing out of America’s middle class. 

Now, this is something a lot of us have been talking about for 

a while, but the problem gets more acute when we take a look at 

each generation coming in, our young people coming in. We now 

have young people who collectively owe $1 trillion in student loan 

debt, and it continues to go up every single year. So we have put 

these young people in the position of saying, look, if you want to 

have a shot at making it in America’s middle class, you have got 

to go to school. You have got to go back, you have got to get that 

education. But you are on your own to pay for it. You are going to 

have to borrow more and more and more money to do that, and 

then hit an economy like this. 

So what I would like to ask you about, what I would like you to 

talk about from your different perspectives, is this question: What 

happens to America’s middle class when each succeeding group of 

young people is carrying more and more debt as they start their 

adult lives? Can we just talk about that for a minute? And maybe 

start with you, Ms. Traub. You mentioned student loans a little bit, 

so could we start with you? 

Ms. TRAUB. Certainly. There is some research; the Consumer Financial Protection Bureau recently came out with a study of young 

people who owe student loan debt and looking at the extent to 

which they are not buying homes, they are delaying marriage, they 

are delaying starting families, delaying—I do not know that they 

looked at delaying small businesses, starting a small business, but 

one would expect that that might be another consequence. And it 

is, as you say, a hollowing out of the middle class, and this level, 

the sheer level of indebtedness is a big part of that. 

In addition, credit reports and credit standing is eroded, and one 

issue that I have had an opportunity to look at is the use of credit 

reports for employment. And so an employer looks at a credit report and may decide this person has too much debt. They are not 

23 

looking at the score. They just see a large burden of student loan 

debt and may decide not to hire that person. And then you have 

gone to school to improve your chances of being hired and find that 

that actually undermines your application for a job. It is very troubling. 

Senator WARREN. Dr. Mian. 

Mr. MIAN. I will just add one thing. The question of increasing 

debt, whether it is student loans or housing loans, basically reflects 

the goods and services that people used to consumer that they can 

no longer afford to the same extent and, hence, they are borrowing. 

It is a simple reflection of that fact. 

Historically, if you track debt to GDP, private debt to GDP, you 

see two peaks: one in 1929 and the other one in 2007. And we 

know what happened to the overall economy post-1929 and post2007. What I am basically emphasizing is that when you see a 

rapid increase in private debt, that increase is not sustainable economically because it is basically reflecting reduced market power 

or reduced purchasing power of a core group of the population, and 

at some point they are going to collapse. And when that happens, 

it is going to affect everyone, because the demand is not going to 

be there anymore because they are not going to be able to borrow 

anymore, so they will stop going to school, they will stop buying 

homes, or they will stop buying cars, and everyone is going to suffer the repercussions of that. That is what happened in 1929; that 

is what happened in 2007. 

And so it is that process that we need to look at carefully, and 

even when we allow our credit markets to function—and, of course, 

they need to function and they should function. But this is exactly 

the point that I was trying to emphasize in my earlier testimony 

as well, that we need to set up these markets in a way so when 

they overstretch themselves, they do not lead everyone to collapse 

along with them. So we need to put in these safety valves. 

For example, student loans, I mean, this is a big ticking time 

bomb because people can get out of other kinds of debt through 

bankruptcy, but as you know, they cannot get out of student debt. 

So I worry about the situation that if this thing collapse and people 

are unable to find enough jobs which are paying enough to pay 

back their student loans, what is going to happen to the social fabric of this society as the lenders and the courts go after them, as 

they would be required to? So it is a very serious problem that we 

need to look into. 

Senator WARREN. Thank you. 

Ms. Thatcher, I see you shaking your head. Would you like to 

add on this? 

Ms. THATCHER. Yes, I just have a few comments. Me, I have several friends that have gone through tons of schooling for their 

teacher’s credential or business and things like that. They are hitting almost 30 years old, and they are still living in their parents’ 

home due to that, because when they get out of college, they have 

so much debt. And then they are getting jobs due to the economy 

downfall that are not paying enough for them to live and pay their 

debt. So they are hitting 30 years old still living with their parents. 

And, I mean, if their parents are not doing that well, the whole 

family is not doing that well, and so they end up either not going 

24 

back to college or they are stuck with a job that does not pay anything. It is kind of like a cycle, and I see it so, so often. 

Senator WARREN. That is a very important point. 

Ms. THATCHER. Yes. 

Senator WARREN. Ms. Melson, would you like to add to that? 

Ms. MELSON. Yes. As a matter of fact, me and Pam had the opportunity to talk to a group of seniors, and it is incredible how 

knowledgeable they are. They understand and they are living in 

fear. They are afraid. I know my own children know that I was a 

pretty good student. They know that I went to college right out of 

high school. They also know that 20 years later I am still paying 

off that debt. So it is really scary. And it is scary for them, and 

they live with the unnecessary fear that they should not have to. 

They should be going into college prepared to study, not to think 

about the financial burden. 

Senator WARREN. Twenty years, and you are still paying for this. 

Ms. MELSON. Yes. 

Senator WARREN. Mr. Cox, did you want to add anything? Go 

ahead. 

Mr. COX. Well, I find it interesting. I was just talking here the 

other night to a person, and they mentioned that they had a college 

debt, and, quote-unquote, they will be paying for that college debt 

the rest of their life. And, you know, when the college costs come 

to a point where there is no—I guess the right word is ‘‘residual’’ 

value, I guess, you know, where—you know, the idea was you go 

to get a college education, which increases your opportunity for 

higher income, so to speak, but now the college costs, the college 

loans are preventing these people to be able to see the benefit of 

a college education, you know, the wait. And that is kind of where 

I see it. 

You know, I was fortunate in a sense where I paid my way 

through. I worked and paid my way through. But a lot of folks cannot do that. 

Senator WARREN. When college costs were a lot lower. 

Mr. COX. Yeah, yeah. 

Senator WARREN. When you and I went. I paid $52 a semester 

in tuition. 

Mr. COX. Yeah, I think when I started, it was like $68. 

Senator WARREN. State schools, they were supported back then. 

Mr. COX. Yeah, yeah. It was affordable. 

Senator WARREN. That is right. 

Can I ask Mr. Hanauer to put this—— 

Mr. HANAUER. Yes, I would love to respond, and to respond directly to Senator Heller, because I did not say that raising taxes 

created jobs. But what I did mean to point out is that if wealthy 

people like me and corporations that were profitable paid taxes at 

rates as we once did, then the middle-class families could afford to 

send their children to colleges without taking on an aggregate of 

$1 trillion worth of debt. And not only would middle-class families 

benefit massively from that, but eventually I would benefit massively from that because then they would not have to pay debts. 

They could buy products from my companies and create a virtuous 

cycle of increasing returns that capitalism is capable of doing. That 

is the point. The point is not should taxes go up but who should 

25 

bear the burden in a way that animates a virtuous cycle in the 

economy. 

Senator WARREN. Right. I want to thank you all, and I just want 

to note we are 3 weeks away from the interest rate on new student 

loans doubling. We are here today on the day that Congress could 

have prevented that. The U.S. Senate could have started the bill 

to prevent that. And we have just returned from a vote where the 

effort to try to keep the student interest rates the same failed. The U.S. Government is scheduled to make $51 billion in profits 

off our students this year on their loans. This is obscene. And what 

it does is both economically wrong, as you rightly point out, and 

morally wrong. We have to do better than this for our children. 

Thank you. 

Thank you, Mr. Chairman. 

Chairman MERKLEY. Thank you, Senator Warren. 

Before I ask my question, I think I mentioned earlier this is the 

first hearing that I have chaired. It is also an unusual moment in 

which my partner, my spouse, Mary Sorteberg, is able to join me, 

and she is sitting in the back. I do not know if she will be here 

by the time I get to my next question, so I just wanted to say I 

am delighted that my partner could join us today. 

[Applause.] 

Chairman MERKLEY. Now, this question we are all discussing is 

one that our family talks about all the time. We live on the east 

edge of Portland. We live in the David Douglas community, David 

Douglas High School community. A number of the families that— 

of course, in addition to the three families we have today, there 

were five other families in the ‘‘American Winter’’ film. A number 

come from our working-class community. And so we see this directly. We impact that the three of you are describing. And whether we are looking at it from the front line that you all are on or 

from the analysis that our experts have brought today, I think this 

is something of grave concern. Mr. Hanauer talked about a virtuous cycle. I am concerned about a cycle in which the message becomes one that depresses aspirations, that essentially our parents 

and our children say, you know what? There are not jobs out there. 

You cannot risk incurring student debt that will follow you and 

haunt you the rest of your life. Look what is happening to the 

neighbor who is 30, still living at home in the basement, not getting married. Better to try Track X or Track Y, or just that the system is so fixed against middle-class families that it will only be 

with—it will be like winning the lottery if you ever get a good job. 

That cannot be the message that a prosperous Nation is based on, 

and the system, therefore, is obviously broken. 

And so as I think about these pieces in which people are being 

set back by unanticipated health care expenses, which we have not 

talked about yet but is extremely common, about unexpected setbacks in living-wage jobs, and two of our families notes that the 

jobs that are reappearing are half what they paid before, both from 

the personal side on the front line as parents and from the experts’ 

side, I wanted to just ask you to address any aspect of this kind 

of are we in danger now of a national cycle of depressed aspirations 

replacing the motivating vision of the American Dream. And if 

there is one thing you could say that we need to do to change 

26 

where we are at, what would it be? I will take anyone in any order 

they would like. John, do I see you reaching for the button? Go 

ahead and turn on your microphone. 

Mr. COX. Thank you. You know, one of the first—just listening 

to you right there, a few years back I was working for the State 

of Alaska, and one of the programs that they had going there was 

called the Job Training Partnership Act, JTPA. I do not know if it 

is still around. But, anyway, it was a national program, and what 

I specifically remember was there were paper mills in Sitka, in 

Ketchikan, Alaska, and I think there was a timber mill in 

Wrangell, Alaska, where they all got shut down because of the 

Tongass National Forest preservation. And this JTPA, what it did 

was it took these folks that were employed in the paper mills and 

the lumber industry and retrained them in something, you know, 

in a different industry. In other words, what it did was, you know, 

it helped keep them off the unemployment rolls and gave them a 

new tool to pursue another career. I do not know if something like 

that is still around or not. That is just one example right off the 

top of my head. 

You know, so in that respect, it was the Government helping, but 

at the same time, it was keeping these folks on their feet. And, you 

know, this is extremely outdated. It would be like the New Deal 

with FDR. You know, he implemented some jobs out there, you 

know, Government-assisted jobs, basically to get people employed. 

I do not know the mechanisms. I wish I did. You know, that is why 

we kind of lean on your folks, I guess a little bit, and we do appreciate you, believe me. But, anyway, thank you. 

Chairman MERKLEY. Thank you, Mr. Cox. 

Mr. Hanauer. 

Mr. HANAUER. It is a fantastic—it is the question, and I just 

wanted to say that when Senator Warren talked about rising college debt and that crisis, I think it is important to acknowledge 

that there is a parallel crisis, which is that we have structured our 

economy in a way that the only way in this country today that you 

can avoid a life of poverty is to go to college, and that is insane. 

It is insane to have an economy where the only possible way out 

of poverty is to take on $100,000 worth of debt to go to college. 

And I think that, you know, what we have to do is not just to 

pretend that if we put a few more people through college that we 

are going to fix this problem. We have to deal directly with the crisis of low-wage work. And the fact that most of the jobs our economy is creating today are jobs that have poverty wages. 

So if we—you said one thing? If I was God and could do anything I wanted, I would raise the minimum wage to $15 an hour over 3 

years, starting tomorrow, because the only difference between—we 

imagine that workers in former years who worked for auto companies and made good middle-class wages somewhere were magically 

different or worked for magically different companies than a 

Starbucks employee. It is not true. The only difference between 

those workers is power. It is power. Those two enterprises create 

exactly the same amount of value in society. They are equally profitable—in fact, Starbucks is probably more profitable. The only difference—the only difference between those workers is their ability 

to extract part of the value created by the enterprise. And if you 

27 

raise the minimum wage to $15 an hour, you would inject close to 

$500 billion into the economy from people definitionally who could 

afford it to people who definitionally desperately needed it and animate a virtuous cycle of increasing returns. All that money goes to 

the very businesses that have given those increases in wages. And 

now there is $500 billion that you do not have to tax people to send 

food stamps to people who work for Walmart because Walmart 

pays such low wages. 

Again, so you get this incredible two-fer where you change the 

nature of work, you give people a living wage, you ask the market 

to bear the burdens. You do not have to ask taxpayers to make up 

the difference. And you start this cycle of increasing returns. You 

generate demand, more workers, more wages. 

Ms. TRAUB. I would love to—— 

Chairman MERKLEY. Thank you. Let us go back and forth between the family front line and the experts. Ms. Thatcher. 

Ms. THATCHER. Thank you, Chairman. I just wanted to add to 

his. He says that let us go ahead and raise the minimum wage to 

$15 an hour. I just want to ask, do a lot of you know, I mean, how 

to live off $15 an hour? Because I do. My husband makes $14.50, 

used to make $20-something. He now makes $14.50. We have two 

children, and we are supposed to survive off just that. I tried to get 

a part-time, full-time job. Paying day care, it is unrealistic, basically. I do not know if anyone in here has ever had the sad opportunity to think: How am I going to pay for a roll of toilet paper? 

How am I going to buy a razor? You know, just the simple necessities that you need, because $14.50 is not a lot. But if you do raise 

it, those students coming out of college, I mean, that is a great opportunity. I mean, that is a starting point. And I just agree. I agree 

with it. That is a wonderful, wonderful thing. 

Thank you. 

Chairman MERKLEY. Thank you. 

Ms. Traub. 

Ms. TRAUB. Thank you. Yes, I also would love to build off of Mr. 

Hanauer’s point. The other difference between the Starbucks workers and the UAW workers, it is partly the minimum wage. It was 

higher at that point. The other reason that working people in the 

auto industry had that power that you are highlighting is a strong 

union, of course, and that is the other place that policy I think can 

make a tremendous difference, is in rebuilding that power to organize and to join a union. And I know right now that President 

Obama’s appointees to the National Labor Relations Board are 

awaiting Senate approval. I think that is tremendously important. 

And having looked at the research on the challenges—and I did 

work at one point for a union in New York City—the challenges of 

trying to organize today, it is not a right that people really have 

anymore in this country. The National Labor Relations Act is still 

on the books, but it is not—it has been hollowed out. The right to 

organize is not something that people really have anymore, and 

neither is the right to bargain collectively. And rebuilding that 

right is what it would take to give working people power in this 

economy again and the ability to get some of the benefits of this 

very prosperous country that we all still live in. 

Chairman MERKLEY. Thank you. 

28 

Ms. Melson. 

Ms. MELSON. And just directly related to your initial question, 

the depression, I actually have a story. When I was employed with 

WorkSource, one of my coworkers was kind of training her daughter or preparing her daughter for the workforce. There were a lot 

of people who came through WorkSource because, of course, it is 

connected to unemployment, and they were wanting to further 

their education. They wanted to go into a new field. And she was 

deathly against people going into a new field trying to get an education, and her thing was, ‘‘I am not telling my daughter to go to 

college.’’ She is, like, ‘‘Why should I? It is no guarantee that she 

is going to get a job, and then she is going to come out with debt.’’ 

Her daughter is 16. Why would you feel that way? 

But I can understand the hopelessness. You know, I can understand how she feels, like, ‘‘I am not going to set my daughter up 

for failure. So at 16, I am going to tell her, no, you do not pursue 

an education. You go out and you work.’’ 

And then where is she going to work? At a minimum wage job? 

And she will be stuck in that pattern for the rest of her life. So 

that is just a direct answer to your question, is hope—people feel 

hopeless. 

Chairman MERKLEY. Thank you for sharing that story. 

Mr. Hill. 

Mr. HILL. Certainly in different walks that I go through in my 

job, I deal with many people who have struggled. In Nevada, there 

is no place folks have struggled more over the past 4 or 5 years. 

On the other hand, we are pretty optimistic State, and I think 

I would point out that, you know, we have looked at developing our 

economy differently. And I really think the country needs to as 

well. 

There are alternatives between a 4-year college degree and no 

further education at all. We are focused on, for example, certificate 

completions that offer great opportunity at lesser cost. And I think 

it is a significant alternative to the reality of the level of debt that 

you may get into if you go to college and do not know what that 

is going to result in as far as an investment and a payback. 

So at the State level, we kind of look at things on a reality-based 

situation. This is the way it is. What do we do with this? How do 

we get our people back to work? But we feel pretty optimistic about 

where we are headed. We just need to earn it. 

Chairman MERKLEY. Thank you, Mr. Hill. And as your department studies the State, any evidence of the problem I was alluding 

to of people starting to say, you know what, as Ms. Melson was 

saying, we are not going to have our kids aspire to a college degree 

because of the debt that they will potentially face. Are you starting 

to—I realize optimism may be strong, but is there also an undercurrent of deep concern about whether or not there is a path, unless you are extremely lucky, if you will? 

Mr. HILL. Certainly, Senator, if after having been through 5 

years where—the statistics of their net worth having on average 

dropped from $150,000 to maybe $60,000 or $70,000, if they are 

fortunate enough not to be in an underwater mortgage, that period 

of time takes a toll. We need to see an economic recovery. I think 

at this period of time, we are certainly—as well as the rising cost 

29 

of a higher education degree. One of the focuses in Nevada is on 

the Pell grant. It currently pays for approximately 64 percent of a 

college education where 20 years ago it paid for about 98 percent. 

You were talking earlier about the shift from grants to loans. Those 

who cannot afford college need that kind of help. So there is some 

of that, certainly. But there are also alternatives. 

Thank you. 

Chairman MERKLEY. And, Dr. Mian, everyone else had a chance. 

Do you want to speak to this? 

Mr. MIAN. Yes, I will just briefly say that, you know, the American Dream is a wonderful idea, and I have personally benefited 

from that. It is a country I love precisely because of that notion. 

But I do worry that that dream is slipping away from more and 

more people. And statistically, if you look at mobility, which is, you 

know, from a lower-income family going into a higher-income 

bracket, that mobility in the U.S. is now lower than in Europe, just 

to give you an example. Now, that is very worrying. Aspirations at 

the end of the day are based on what is happening on the ground 

in terms of the reality, and you have heard many stories that reflect that. 

I think given that situation, we also know that in terms of job 

creation and in terms of higher-income jobs, they do tend to be sort 

of jobs based on technology and so on and so forth. So to give 

lower-income families a chance to make it, education is the centerpiece. And we cannot have a system where the only way to get an 

education is to give up an arm and a leg to the student loan market. I think we need to revisit that piece very carefully. 

Again, if you go back to Europe and you look at Germany, take 

Germany as an example, they suffered a lot through the recession 

in terms of GDP, but they protected their labor market, and they 

invest a lot in their higher education. And, again, it is a hybrid system, college plus apprenticeship and so on. Different things work 

for different people. But we need to have resources that the society 

gives to us 15-, 16-, up to 20-year-olds, to say, OK, we will give you 

a shot, now you go ahead and do what you can. And, of course, if 

they are successful, we will all take a piece of that. You know, that 

is how the Government works. But we need to have that system 

in place, and we cannot rely on private debt, then outsource the 

problem of education to the private market. That is not sustainable. 

Senator HELLER. Thank you. 

Mr. Hanauer, you and I will probably agree to disagree. 

[Laughter.] 

Senator HELLER. I do not want to go in circles on this, but I do 

appreciate your insight. I really do. And I think there is some truth 

to what you are saying. We probably philosophically come from different places, and I do believe that the key to success is to make 

sure that this economic engine is working. And I believe history 

has proven, back in the 1960s under President Kennedy, when he 

lowered taxes, that the economy took off and we had more revenues 

in this Federal Government. The same was true in the 1980s under 

Ronald Reagan. When he cut taxes, we increased revenue, and the 

purpose of that, of course, and that funding and the upside to it, 

of course, is that we were able to pay for higher education and 

30 

have more funding available to some of these issues. So I guess we 

can agree to disagree, but I think history probably is more compelling when it talks about making sure people have more money in 

their pockets. And we have a progressive tax system here in this 

country, and it ought to remain progressive. I agree with that. And 

I do believe bits and pieces of what you are saying with the engine 

being the middle class, I would not disagree with that at all. 

But I want to change topics for just a minute because I want to 

talk about the American Dream and, Dr. Mian, what you were saying in your testimony. I want Mr. Cox to stay in his home. I really 

do. And I think everybody here wants you to stay in your home. 

We have had over 400,000 people in the State of Nevada receive 

foreclosure notices. Four hundred thousand people in Nevada—that 

is one-third the population of Maine—have received foreclosure notices in our State. And you can imagine the economic impact something like that has, and we could have brought a myriad of people 

just like yourselves here talking about the issues. 

Now, I do not know if you had a fixed loan or a variable loan, 

but to your point, Dr. Mian, you talked about your solution. Your 

solution on a 30-year loan was to make sure that there was downside protection; and, second, to make sure that there was a 5-percent net capital gain for the lender on the sale of the home. 

I had a former Chairman of the FDIC in my office yesterday, and 

we had a brief discussion, and she wrote a book recently talking 

about had we taken aggressive action as a Government—and this 

would have been pretty aggressive—on these variable loans, had 

we gone back to the original rates—as these were progressing, people were losing their homes. Had we gone back as a Government 

and said, OK, we are going to go back to the original rates on these 

variable rate mortgages, we could have saved a lot of people and 

kept a lot of people in their homes, and the impact of that that 

would have had nationally to where we are today. Now, it is probably too late to do it. Clearly it is too late to do it. But she believed 

at the time, had we stayed with the original rates that got people 

into these loans, that we could have saved a lot of homes, saved 

a lot of individuals, and a lot of economic turmoil that was caused 

by this housing problem. 

Do you believe that was a solution at that time? 

Mr. MIAN. So I know these numbers very well because I look at 

these numbers for a living. Of course, if you go back to a lower 

rate, you would have helped some of the homeowners. I do not disagree with that at all. But I do not believe it would have been sufficient to have had a serious dent in the problem. The core issue was 

underwater homeowners, which is a question of where the principal 

is relative to the value of the home, and so you had to address that 

key issue. So it is not just about the interest rate that you are paying on the principal. It is about the amount of the principal itself, 

number one. 

Number two, from a legal perspective—and I am sure the private 

market as well as the legislature appreciates that—it is almost impossible and not advisable to ex post come in and tell people, you 

know, let us change the terms of the contract. That is why in my 

proposal, what I was suggesting was an ex ante solution where you 

go into the contract thinking about these possible scenarios and 

31 

saying if that happens, the entire mortgage payment, which, as you 

know, includes the principal piece plus the interest piece, adjust 

proportionately downwards in case house prices decline enough. If 

we had had that kind of a system, we would have completely avoided the underwater problem, the foreclosure problem, and everything else that followed as a result of that. 

So I sincerely believe that, you know, we need to take that kind 

of an action looking forward, and it is sort of a very conservative 

principle. It is a market-based principle. The Government would remain out of it. 

I will say one point, though. I think the Government needs to 

kind of promote or encourage this kind of mechanism, and I will 

just give you one example. We currently have mortgage interest deductibility, which is very powerful as an incentive for people to 

kind of go for the 30-year mortgage. The proposal that I am giving, 

for example, will not work very well if this new contract does not 

count as debt because then it will not have that tax advantage. 

So I would add the piece that—you know, I would love if I had 

the power—obviously I do not, so here is the idea: Have the proposal that I gave you, get rid of completely the current interest deductibility on standard mortgages, and instead move that deductibility to the mortgages that I am talking about. So the entire market—from this point onward, you know, the entire market will shift 

to what I am referring to as socially responsible mortgages. And, 

you know, those payments they can deduct and so on, and now we 

will all be protected. The middle class will be protected from all of 

this mess, the foreclosures mess and everything else that followed, 

the next time there is a downturn in the housing market. 

Senator HELLER. OK. I would like more information, if I can get 

that from you at some time, what you are talking about. 

Mr. MIAN. Absolutely. But, Mr. Cox, you were shaking your head. 

Some of you were shaking—is there anything that this Government 

has done to make it easier for you to stay in your home? I mean, 

we have had a myriad of programs that we have passed through 

both the House and the Senate here, signed by this President. Has 

any of it helped you out? 

Mr. COX. Well, personally, I have gone to about every—through 

just about every option I can think of. 

Senator HELLER. Is your home currently underwater? 

Mr. COX. Yes, it is. 

Senator HELLER. It is underwater. 

Mr. COX. Yes. 

Senator HELLER. See, this was the problem we had in Nevada. 

Mr. COX. It is about $150,000 underwater, last I checked. 

Senator HELLER. And I do not know what that percentage is, 

but—— 

Mr. COX. It is about 70 percent, maybe 65 percent of what I owe. 

Senator HELLER. And that is why you probably do not qualify for 

any of these programs, because you are too far underwater. 

Mr. COX. Right. 

Senator HELLER. Most of these programs were based on not 

being that far underwater. 

Mr. COX. Right. 

32 

Senator HELLER. And that is the problem we have in Nevada. 

These people are too far underwater, so all these Government programs that are out there, they are taking a look at how far they 

are underwater, and they are saying, hey, we cannot help you, it 

is too deep. 

Mr. COX. And I would like to interject also, again, with this 

Wells Fargo and, what was it, the HARP or the HAMP program— 

I cannot—personally I thought that was a farce, and, you know, 

they string you along, having you send in tons and tons of documents. And then they—about 30 pages each time, and then they 

say, well, you forgot to sign this one piece of paper, you have to 

do it all over again. And this went on and on and on. This has been 

2 years of doing this, and—— 

Senator HELLER. And I have seen some of that with the banks. 

I am having friends that are making their payments, and they are 

getting called by their banks saying, ‘‘We would like to refinance 

your home.’’ They did not even request it. But what they are doing 

is they are going by people that are making their payments and 

asking them, ‘‘Let us refinance.’’ They are not helping those that 

cannot make the payments, who are having difficulty making the 

payments. They are helping those that are already making the payments, and they may be underwater, but they certainly did not request help. They are going to people who are not requesting help 

and refinancing their loans. 

Ms. Melson. 

Ms. MELSON. I do know of a couple of federally funded programs 

that are there for mortgage payment assistance, and I do actually 

know of a couple stories through 211 where the Government has 

stepped in and has helped people with their mortgages. So there 

are those programs, but they have very, very, very strict requirements. And so if you do not fall into those guidelines, then you are 

not going to be assisted. But there are a few out there. 

Senator HELLER. Very good. 

Mr. Chairman, thank you. 

Chairman MERKLEY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. So I would like to 

go back to this conversation about wages, that low wages have 

been one of the reasons that we have hollowed out America’s middle class. And I thought it was a great conversation about the minimum wage and how valuable increasing the minimum wage could 

be. 

You know, we need to remind ourselves, with a Federal minimum wage right now of $7.25, we have a bill pending to raise it 

to $10.10. I am a cosponsor on that bill. I support it. But it did not 

have to be there. I see you doing that, Mr. Hanauer, get that number higher. 

[Laughter.] 

Chairman MERKLEY. Senator, didn’t you propose $20 at one 

point? 

Senator WARREN. What I did is I pointed out that if the minimum wage had been linked to productivity starting back in the 

late 1960s, if we had just linked it to productivity, how much more 

each earner is working, our earners collectively are working, it 

would now be $22 an hour. 

33 

Now, I did not advocate and I am not advocating a $22-an-hour 

minimum wage, but the question is: Why didn’t it rise? Why didn’t 

it go up? If productivity went up, why didn’t workers’ earnings go 

up at the same time. Why didn’t they get a piece of the pie that 

did not have to be a bigger slice but it would grow if the pie was 

growing? 

And I think you hit a big part of that, Ms. Traub, when you said, 

‘‘Because the workers do not have any power.’’ And this is what 

happens with declining union membership, that they cannot bargain collectively; when they do not bargain collectively, they are 

not able to get out there and fight for wages—wages that affect not 

just those who are in unions, but they affect everybody. They help 

set the standard for everyone. 

So I take this very seriously, and I see the importance of supporting our unions, supporting the right to collectively bargain, the 

importance of getting our NLRB representatives through, and I 

should say the Secretary of Labor so that we have a functioning 

labor policy here. 

But I want to go back to a different part of this because I do take 

this seriously. The constant refrain is, no, we cannot raise the minimum wage because it will cost jobs, there will be fewer people employed. Now, there have been academic studies, very serious, very 

rigorous academic studies. For example, those that study what happens in a metropolitan area that is split and half of it is in one 

State, half is in another, and the minimum wage shifts in one 

State, goes up in one State. And basically they find there is no job 

loss or sometimes a very small job loss. 

So the major argument for not raising the minimum wage, that 

is, it will cost jobs, at least the academic studies seem to show is 

not right. What I thought I would give you the opportunity to do, 

though, is talk about it from your perspective. Mr. Hanauer, you 

have got a vision about how this works. If we raise the minimum 

wage, explain why it is that we will have more people employed or 

at least the same number of people employed. Mr. Hanauer. 

Mr. HANAUER. Sure. Great question. So the first thing to recognize, I think, is that most traditional economics and our perspectives about economics are rooted in a foundational misunderstanding about how these systems work, that they are linear and 

mechanistic, and if one thing goes up, another thing must go down. 

Nothing could be further from the truth. You know, capitalists 

need unions in the same way that animals need plants. If workers 

have no money, capitalists will have no customers. And I am a big 

supporter of unions. I am. But raising the minimum wage is a far 

more economically efficient way to generate growth, because everybody is on the same footing. Every company competes equally with 

other companies. And, look, you know, the problem with unionization is if one industry is unionized and another one is not, that creates a very difficult existential threat to one of those companies. 

The other idea is that if you raise these wages you will outsource 

these jobs, but the simple truth is that virtually every low-wage job 

in America is a service job that can neither be outsourced nor automated. 

So when you take these things together, by raising the minimum 

wage, yes, prices will go up a little bit. They will. But since everyVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
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body who is going to—so there are two classes of people. Either the 

people who are getting a big increase in the minimum wage will 

now be—who get a 40-percent increase in their wages will easily 

be able to absorb a 5-percent increase in prices. And people who 

did not get a raise but could afford it anyway, right? And the thing 

that is so obvious but is missing from these academic reports is the 

virtuous cycle thing. When minimum wages go up, workers have 

more money. And when workers have more money, they buy things 

from the very companies that raised those wages, generating more 

demand and more jobs. And that is why it works. And that is why 

it is such a crucial part of policy. 

Senator WARREN. I appreciate that. 

Anyone want to add to that? 

Ms. TRAUB. I would like to add to that. I do not think we disagree about what a good idea it is to raise the minimum wage. I 

just want to point out that, in addition to minimum wage workers 

then making more money, it pushes up other wages across the 

board. Employers—— 

Mr. HANAUER. A spillover effect. 

Ms. TRAUB. Yes, there is a spillover effect, and so employers 

raise wages for other workers. If we feel that $15 an hour is still 

a low wage, it is hard to get by even on that, even though that is 

more than twice as much as the Federal minimum wage is now, 

many workers would make more than that. Workers who are currently making $15 an hour would have a lot more bargaining 

power themselves in the workplace. And so it is not just something 

that lifts up minimum wage workers. It has a ripple effect throughout our economy, throughout the low- and middle-wage workforce. 

Senator WARREN. All right. Dr. Mian. 

Mr. MIAN. Just a quick point. First, in terms of, again, the data, 

statistics, if you look at the U.S., the share of output going to labor 

has declined tremendously in the last 5 to 7 years, and it is at 

record lows. So just, I mean, something is happening in terms of 

this balance between capital and labor. The share of profits is very 

high, and the share going to labor is very low. So there is something going on, just to point that out. 

In terms of the minimum wage, given that we have agreed collectively as a society that there should be some minimum wage, I 

think a better approach might be as opposed to coming and arguing 

about a fixed-dollar number every few years to, as maybe you suggested it as well, index it to something that is meaningful so we 

do not have to come back to this issue, and so it naturally goes up 

with something like inflation or cost of living, or whatever you 

want. We can argue about that. But, you know, that I think is the 

way we should think of—in the long-run sense, we should think of 

minimum wage. 

Thank you. 

Senator WARREN. Good. Anyone else? 

[No response.] 

Senator WARREN. Good. I just want to say thank you again to all 

of you for being here. I want to say thank you, Mr. Chairman. I 

am going to go fight about student loans for a little while now, so 

please excuse me. But keep up the good work. Thank you. Thank 

you all. 

35 

Chairman MERKLEY. Thank you very much, Senator Warren. 

We are going to have to wrap up by about 12:25, so I am going 

to ask a more contained question than I asked the first time, and 

I think Senator Heller has one more question he would like to ask, 

and then I will ask a final question and we will wrap up. 

Mr. Hanauer, I wanted to ask you about the virtuous cycle that 

you were talking about and how consumers, the middle class drives 

this production cycle. One rebuttal that I have heard so many 

times would go like this: If I as a company manager or owner can 

cut costs and have profits at the end of the year, and maybe those 

costs are labor and maybe they are tax costs, if I can cut those 

costs, I now have this money, and I go, You know what? I can increase the size of my sales force; I can hire three more people to 

do research on the next generation of the product; I can do more 

advertising, which will increase demand; and then I will be able to 

have more people building the thing. And voila, I will have more 

jobs and society will have more jobs.’’ 

I think that is the most common presentation of the opposite 

version of cut expenses in any way you can and you will produce 

more jobs. 

Would you like to kind of examine that and see where you see 

the shortfalls and strengths are in that vision? 

Mr. HANAUER. Sure. So the only thing that compels a capitalist 

like me to add labor is the absence of alternatives to doing it to 

meet future customer demand or present customer demand. And 

all capitalists are profit seeking. We seek to maximize profit. I am 

a huge believer in capitalism. Sometimes I talk and people think 

I am not, but I am a huge—capitalism is the greatest social technology ever invented for creating prosperity and ennobling the 

human spirit. But it comes in a lot of flavors, some lousy and some 

good. And the thing is that if it was true that more profit led to 

more employment, then it could not also be true that American corporations are more profitable than they have ever been in history 

and unemployment and underemployment is also higher essentially 

than at any time in history. And that is because these two things 

are not linked. They are not linked. There is a rate limit to how 

many people you can employ to do research in the future. There is 

a rate limit to how many people you can employ to think about 

things. Capitalists make investments in people when demand 

makes that make sense. 

You know, there is this idea that capitalists—you know, the verb 

is ‘‘give’’ people jobs, right? You hear this all the time, and you are 

left with a sense that somebody like me gives somebody a job like 

I might give you wife a bouquet of flowers at Valentine’s Day. 

Nothing could be further from the truth. You know, you do not give 

somebody a job. You reluctantly agree to maybe employ them because you cannot do the work yourself. 

And so it just is categorically untrue that we need to make capitalists sort of limitlessly profitable so that they will generously 

give other people in the society jobs. It just does not work that way. 

And there is, you know, indisputable evidence that it does not 

work. We are in that circumstance right now. Corporations are sitting on $2 trillion worth of cash—$2 trillion worth of cash. CorVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
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porate profits are at a 50-year high, and labor is falling like that. 

This is just not how it works. 

Chairman MERKLEY. Thank you. 

Senator HELLER. Thank you, Mr. Chairman. Again, thank you 

for this hearing. This was great. And I want to thank all the witnesses for taking time. Again, I think all of you are expert witnesses, and I certainly have learned something from today’s hearing. 

This is a Banking Subcommittee, so I want to talk about banking 

for just a minute. We passed several years ago a pretty onerous 

piece of legislation called ‘‘Dodd-Frank’’ that I think hit the industry pretty hard. And through the last 4 or 5 years in the State of 

Nevada—and I am going to move this question to you, Mr. Hill— 

we have had some rough times, and one of the downsides to this 

tough economic moment that we are in is that we have lost half 

of the community banks in the State of Nevada. We have lost half 

of them. 

Now, these are small banks. These are the Main Street banks. 

It is not Wells Fargo. It is not Bank of America. It is not Citibank. 

These are the small banks. And these are the banks that know 

their communities, and these are the banks that make small business loans. Wells Fargo does not make small business loans. They 

may from time to time, but they are more worried about the bigger 

guys. Bank of America, the bigger guys. Citibank, the bigger guys. 

But we have seen a real downturn in the small community banks 

in our communities, and I think that is affecting our ability for economic growth. When these small businesses are coming to us all 

the time saying, ‘‘I cannot get a loan. I need some rotating cash or 

capital so that I can keep my business prosperous.’’ The trend. 

You are president of a bank, Mr. Hill. What do you see? And do 

you see any change coming? 

Mr. HILL. Senator Heller, you mentioned that you had met yesterday with former Director Bair. I had as well when the bank that 

I was chairing was struggling because of the economy. We were in 

the process of trying to sell that bank, which we ultimately were 

able to do. 

We have shrunk in Nevada to, I do not know, eight or ten community banks left in the State, much bigger banks, which, you are 

right, naturally do not have the focus on smaller businesses that 

community banks do. And I guess it kind of relates to one of the 

observations I have today. We did not talk a lot about how to create jobs for the middle class today, and I think that the banking 

industry is a big part of that. Looking at our innovation and our 

ability to export, moving away a little bit from—or at least expanding from a consumption-based economy, which is 71 percent of our 

GDP at this point, I think are all important things to do. 

We need to look at what it takes for a small business to create 

a job right now. They do not have trillions of dollars in cash in the 

bank. They are trying to make it. And we need to think about that 

and tie it into the policies that go beyond just job creation so that 

it really does become our top focus. 

Mr. HANAUER. Senator Heller, I—— 

Senator HELLER. Yes, please, would you? 

37 

Mr. HANAUER. I own a community bank, and, you know, I can 

only share our experiences in Seattle, Washington. We own a bank 

called Seattle Bank that we bought essentially out of bankruptcy 

through the downturn, and, boy, I tell you what, it was not DoddFrank that flipped that thing over. It was making crazy, irresponsible loans to people, mostly in the real estate business, that did 

not make any sense. And before you knew it—I mean, you know, 

a bank can be 70 percent underwater, too, not just a homeowner, 

and they were. And so we ended up buying this enterprise for a 

dollar, and we put $70 million worth of capital in it, and we are 

trying to rebuild—we are trying to do precisely what you are pointing to, to rebuild a community bank that gives small businesses 

loans and stuff like that. 

But I will tell you, I can just share with you what our challenge 

is, and that is that the country, particularly the large institutions, 

are so awash in capital that we cannot compete, that the loan rates 

that people are willing to make, at least to medium-size businesses, 

are so low that, you know, it just does not make any sense to loan 

the money. 

It feels like there is plenty of money out there for well—you 

know, for well-managed enterprises doing things that a reasonable 

person would want to finance, to me right now personally. 

Senator HELLER. Thank you very much. 

Chairman MERKLEY. Thank you very much, Senator Heller. 

And I am going to give the closing question, and we will close 

this hearing. But I must say this has been an excellent dialog between experts and families on the front line, and the questions 

raised are huge questions for the future of our Nation. 

There are so many pieces of this that merit deeper exploration: 

the creation of living-wage jobs; the challenge of college education, 

the cost of it; empowering consumers to drive an economy, and so 

on and so forth. 

I wanted to turn to a piece of this puzzle which is related to 

changing technology, and I will point to two pieces, and I just want 

to get some feeling for what you all might have seen and be thinking. 

One is that some jobs that you would not imagine could be 

shipped overseas can now be shipped overseas via the Internet. Mr. 

Cox, you were in the accounting business where you can ship invoices and have people somewhere far around the world run the 

QuickBooks software, and it does not necessarily—it is a service, 

but it is a service that does not necessarily have to be local. And 

we are seeing this in architecture, legal services, all kinds of areas. 

Second is the technology of robotics. I went on a tour, a Made 

in Oregon tour, to look at many, many manufacturing operations 

and having seen a bunch in a short period of time, I saw lines 

where humans were doing the things they have traditionally done, 

from putting on labels to lids and boxing things up. And I saw lines 

that basically every single function had been replaced by a machine. And with the advance in computer chips and the advance in 

actual robotics guided by those chips, it is a phenomenal change. 

I will never forget the image, for example, of seeing a woman 

working to make knives, and she was taking blank knives and putting them into a machine that probably existed for decades. It roVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
38 

tates around, you flip the knife to the other side, rotates around 

again, you pull the knife off, and you are doing this continuously, 

there are so many slots, just as fast as your hands can move. 

And a few feet away was a robotic arm attached, bolted to the 

floor of the factory that was reaching over, picking up blank knife 

blades, grinding them on a large, 4-foot grinding wheel in front of 

it at a whole series of directions, and then dropping it over into a 

bucket. No workers’ comp, no carpal tunnel, no time off, and so 

forth. 

When I see these converging pieces, I see living-wage jobs affected by forces that are happening so quickly. Now, often when we 

have had technological changes, it has happened at a pace in which 

new slots are created within the economy for living-wage jobs so 

that they are offset, if you will, and society marches forward with 

more productivity and more wages, we keep the living-wage jobs. 

Then we entered three decades from the middle 1970s until 

now—well, more than three decades now, almost four, in which 

wages have been flat for workers as productivity has increased, and 

the last 10 years in which we have seen real wages drop. And so 

we are seeing something very different now than we saw in the 

post-World War II era of increasing productivity and increasing 

wages. 

So I guess the question boils down to this: Do we have a challenge with the pace of technological change in having other parts 

of the economy change fast enough to create replacement livingwage jobs? And if we do have that problem, what can we do about 

it? Because without—a living-wage job is better than any program. 

Each of you has gone through the process, and you had living-wage 

jobs, you did not need benefits, you did not think you would ever 

need benefits. And now you need benefits. But it sounded like from 

your comments you would much prefer that living-wage job, that 

that is a foundation. I think that that is felt deeply across our society. That is the foundation for a family. You can buy that threebedroom house. You can proceed to maybe take a family vacation 

each year. You can pay the sports fees for your kids to participate 

in activities at schools. And you are not asking for the world. You 

are asking for what we viewed as the basics of the middle class. 

And now so many of our new jobs do not provide that. How concerned should we be? Are these problems or are they not problems? 

Dr. Mian. 

Mr. MIAN. Senator Merkley, I think you have asked the most important question regarding the labor market from a long-term perspective. Let me start with what I believe is the most important 

but least appreciated observation regarding unemployment and the 

labor market in the U.S. 

If you look at the most recent recession or even go back to the 

previous one, there are two kinds of jobs that have been very well 

protected. What I mean by that is even if people in those sectors 

lose their jobs, they gain them back. Those are the two kinds of 

people—they are either baby sitters or they are scientists. 

Now, what is common between these jobs? What is common is 

that you cannot outsource them. You know, one requires some 

thinking, OK, you know, do this, experiment with this or that. The 

other requires dealing with a child, depending on what the child 

39 

demands, you have to adjust, you know, what you do for day care, 

the child—a robot cannot do that. Those two kinds of jobs come 

back. 

When you look at the jobs which are lost and do not come back, 

those are the kind of jobs that people sometimes refer to as routine 

jobs that involve routine tasks. And it is not necessarily about 

skilled or nonskilled, as you yourself pointed out, in terms of accounting and so on. Those are highly skilled professions. But more 

and more we are seeing the case that they can be turned into routine tasks that can be automated out of the labor market, and that 

is exactly what is happening. Those jobs are not coming back. 

So this is the most serious question from a long-run perspective, 

number one. Just statistically it is very much there in the data. 

In terms of what one can do about it, I think that is really at 

some level a philosophical question. I mean, take it to the extreme. 

Suppose machines can raise all the crops, they can, you know, 

manufacture all the iPhones for us that we need, clean the roads, 

do everything that we want. What do we need humans for now? We 

will still have everything that we need for consumption and living, 

but whoever owns those machines will be like the, you know, 

super-rich citizen and control everything in society. 

So at some level we are gradually moving toward that technologically. That is one view of the world. I do not want to go too far. 

But I think that raises some serious issues from a governance perspective in terms of how we think of taxes and how we think of 

redistribution and how we think of a living wage and a minimum 

wage. So I think there are some very deep challenges from the policy perspective given how technology is moving. 

One thing is for sure. We cannot fight with technology. You 

know, we cannot continue to use the rotary phone while the rest 

of the world is using iPhones. So you have to adapt to technology, 

and those are very serious questions. I wish I had more to say on 

this. 

Chairman MERKLEY. Would anybody else like to jump into this? 

Yes, Amy. 

Ms. TRAUB. I would just agree that the rise of technology makes 

these distributional issue all the more urgent. It could be a utopian 

world which Dr. Mian has just described in which, you know, robots and machines are doing all of the work, and people sit around 

and make music for each other and read poetry all day long. And 

that sounds pretty nice. Or it could be very dystopian, and these 

distribution—you know, people are starving and do not have a 

means of support because there are no more jobs. 

I think that it is all the more important then to be thinking 

about distributional issues and making sure that the gains and 

benefits that our economy is producing are shared more equally 

than they are now. 

Chairman MERKLEY. Yes, Nick. 

Mr. HANAUER. So I am in a technology business mostly and have 

participated in a lot of that disruption, and here is a fantastic way 

of proving that capitalists like me do not create jobs. I was the first 

investor in Amazon.com, and I consider Amazon.com to be one of 

the great economic achievements of our time. It is something I am 

very proud of. But make no mistake. Amazon.com does about $80 

40 

billion in sales, and it employs 60,000 people today, and it has been 

an extraordinary windfall for me, for Bezos, and for some people 

who live in the Pacific Northwest. But if ordinary bricks-and-mortar retailers still did that $80 billion in sales and Amazon.com did 

not do it, then it would not be 60,000 people working. It would be 

a million, because the difference between Amazon.com and bricksand-mortar retailers is massive economic efficiency. Massive economic efficiency. 

The question is not, What are we going to do about technology? 

The question is, Who is going to bear the burden of that transition 

in a society, and who is going to get the benefit? And does it make 

any sense to have a society with laws and policies that allow a tiny 

minority of people to get all the benefit of these transitions and to 

push the costs off on other people in our society? And I think the 

answer ultimately will be no, not just because it will rip the society 

apart and destroy the democracy, but because ultimately it is horrible for business, because while it is awesome in the near term 

that Amazon is doing all this stuff and employing these people and 

Jeff has made all this dough, those 600,000 or 800,000 or million 

people who are no longer employed are not buying anything. Right? 

And so, you know, we are fooling ourselves. Ultimately what goes 

around comes around, and we have to find ways to animate this 

virtuous cycle and not create death spirals. I mean, to me that is 

the central role of Government. 

Chairman MERKLEY. Would anybody else like to jump into the— 

Mr. Cox. 

Mr. COX. Yes, sir. Going along a little bit with Mr. Hanauer over 

there, I worked for a major apparel manufacturer there in Portland 

as a cost accountant, and one of the first things they tell you to 

do is cut costs. The first place you go to cut costs to make profitability is actually cutting employees. And I was just as guilty as 

anyone. I was making $60,000 a year, whatever. But one of the 

ways we did it, these engineers, we ended up putting in a new machine into the distribution center of this apparel place that the machine allowed us to lay off—they had—at peak seasons they had 

700 employees on the floor. With this new machine, we were able 

to cut 86 positions. It not only—you know, like you said earlier, it 

is not only just your wages. It is, you know, your health benefits, 

blah, blah, blah. You do not have to pay that with a machine. But 

it was 86 people. They were making between $10 and $13 an hour. 

OK? But that is 86 people. That kind of money—and it also increased productivity at the same time, which allowed the corporation to make more money and everything else. But that money was 

not being—you know, those 86 people not having that money was 

preventing them—Mr. Hanauer kind of said earlier something 

about getting feet through the door, you know, for them to buy 

something. You have 86 people there that are not able to buy anything anymore. 

The same situation with me when I was laid off making $60,000. 

One of the first things I had to do is I had to lay off—I did not 

lay them off. I no longer took my boy to a day care, and that was 

a little over $500 a month. Well, day care then turns around. They 

have to lay off somebody, an employee. Again, there is another foot 

that is not going through Mr. Hanauer’s door to buy products. 

41 

So I do not know where the magic potion is here, but, you know, 

sometimes I kind of think, you know, we are selling people short. 

Sometimes you—I do not know the solution. But, you know, it is 

like sometimes these folks have to have a realization, you know, 

that you have to have a human element; you know, you have got 

to keep them in there even though a machine might be more productive. You know, I do not know the solution there. 

Thank you. 

Chairman MERKLEY. Well, on that note, I think we are going to 

wrap up. We have heard kind of the virtuous cycle, and we have 

heard the death spiral, and it is something that I am so glad you 

all have come to testify about as we wrestle with the heart of this. 

How do we build a stronger, better middle class, strong family 

foundations? We should measure the success of our Nation not by 

the GDP or the Dow. We should measure it by the success of our 

families. And many folks like to talk about family friendly policies 

or family values. Well, having a good job is a very important family 

value. 

And so the issues that we have raised today are ones that I really appreciate Senator Heller and Senator Warren being here to 

wrestle with. We are going to keep pursuing these issues because 

citizens across the country demand it. They want us to struggle 

with what is happening in America and try to put America back 

on track. So that is a responsibility in a Nation that is a democracy 

of the people, by the people, for the people. And so thank you for 

contributing so much to that conversation. 

This hearing is hereby adjourned. 

[Whereupon, at 1:38 p.m., the hearing was adjourned.] 

[Prepared statements supplied for the record follow:] 

42 

PREPARED STATEMENT OF DIEDRE MELSON 

PORTLAND, OREGON, SUBJECT OF DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

JUNE 6, 2013 

Chairman Merkley, Ranking Member Heller, and Members of the Subcommittee: 

Hello, my name is Diedre Melson. I am an Oregon resident and since participating 

in the film, ‘‘American Winter’’, I have been hired as an employee at 211info, a nonprofit information and referral line people call when they need to learn where to 

go for help in their community. Every day at work I see firsthand how many people 

are struggling to make ends meet. I also live this reality as I struggle to raise four 

children with a paycheck that is never big enough to cover even just the basics. 

Growing up I believed hard work would bring rewards. I started working at age 

13 in my aunt’s hair salon. When I turned 15 I got a job at the Burger King on 

west Burnside in Portland, OR. I worked there for the next 3 years until I graduated high school. I knew how to work hard but I also knew that education was 

the key to a good job, which is why I went to college right out of high school. When 

I was no longer able to afford college I didn’t give up. After 21⁄2 years of college I 

transferred to a career school and obtained certifications in the medical field. 

Despite my continual efforts, getting ahead often feels just out of reach. Again, 

I have worked since I was 13 years old. The only gaps in my resume are due to 

layoffs, cut backs, and permanent closures at the places I’ve worked. I was unemployed as a phlebotomist when the company was shut down and 1,500 of us were 

laid off. I then was unemployed for 2 years before I was able to find work again. 

And when I did find work, it was for minimum wage. In the meantime I was on 

food stamps and housing assistance. But that assistance, although very much appreciated, was not enough to live on and cover rent and food. So I would go scrapping 

5 or 6 days a week, to make $25 to $50 dollars a day. And scrapping, for those that 

don’t know, is collecting scrap metal on the side of the road. But because that didn’t 

provide much income I would also sell my plasma once or twice a week to put food 

on the table and to keep our family from being homeless. 

Now that I work at 211 I make $13 an hour. And I can relate to folks who call 

in for help. When the phone rings at work the person calling 211 often has no idea 

where to turn for help. The people who call 211 come from every type of household 

you can imagine: single parent families, two parent families and seniors. The people 

who call are not much different from me. We are the working poor. On a daily basis 

we go to work and work a full time schedule yet fall short on basic necessities. They, 

like me, believed that if they did everything right—worked hard, got an education, 

planed for the future—we would make it. 

Just like me, so many people who call 211 have been caught off guard by their 

situation. My heart breaks for them and it’s hard not to cry. I remember the mother 

who called me from work in tears. She had been making small payments in an effort 

to stay ahead of her water bill, but when the payment didn’t arrive in time her 

water was shut off. Her 13-year-old daughter was at home and now the mom was 

going to have to leave work to get the water turned back on. She couldn’t afford 

to pay the water bill and she couldn’t afford to leave work but that was the reality 

she faced on that day. 

The next call pulls me into the world of the immigrant worker who isn’t making 

enough to cover her bills but fears asking for assistance because she doesn’t know 

how it will affect her employment. She fears that if she asks for the help she so 

desperately needs she may lose the job she so desperately needs. Sometimes I have 

to take a break after a call because the sadness and emotion is just too much. That 

was certainly the case after talking to the 70-year-old man who was surprised that 

the Social Security he has worked his entire life for wasn’t enough to live on. He 

was shocked that the $700 he gets is barely enough to pay the rent. Now he is left 

begging for a hand out. He is too ashamed to apply for food stamps and feels guilty 

to ask for a hand out with all the mothers and children that are going hungry. 

I am raising four children of my own. I love all of my children dearly and they 

are all special in their own way. I am here to speak out for their future. Today I 

want to tell you about my son Jalean, an exceptional student-athlete with a promising future. 

He takes after me in many ways. He enjoys learning whether it is in the classroom or through life’s experience. Standing six-feet-tall and weighing two-hundredeighty pounds he is a heavyweight high school wrestler, and he is quite the eater. 

Even though I work full time I depend on SNAP to help feed my family—$13 an 

hour simply isn’t enough to support a family of five. I just found out that my SNAP 

benefits are going to be cut $30 a month, now that I am making a little bit more. 

It was already hard to keep enough food in the house for Jalean and the rest of 

43 

my children. I’m not sure how I’m going to make up for the $30 reduction. It may 

not sound like a lot to someone who doesn’t have to struggle, but for me $30 is 

enough to buy three or four whole chickens or a few cuts of meat. 

The constant worry is taking its toll on me, but what’s worse is that I worry that 

it’s my children who will suffer. Jalean has so much potential: a promising career 

as a wrestler or a football player and he excels academically. This past April Jalean 

took fifth place in the Reno Wrestling World Championships. The first year he was 

invited to go to the World Championship I had to tell him we couldn’t afford to send 

him. We were able to get the money for him to go this year, his senior year, and 

now he’s an all American Wrestler. That should be his ticket to a college education 

but it’s not. Instead, because of cuts to education, and how expensive education has 

become, if he doesn’t get a scholarship I worry that he won’t get to go to college. 

Without a college education his prospects are limited. He is an intelligent kid and 

has maintained good grades during his 4 years of high school. I always told him 

he had to work hard and get good grades in order to get into college and succeed 

in life. Do I now tell him that all of his hard work was in vain? How do I explain 

that I can’t afford to send him to college and that there are fewer and fewer scholarships for kids like him? 

It is my hope that together, as a Nation, we can set aside our political differences 

and start thinking in terms of human beings. I would hope that we can stop thinking about mine and start thinking about ours—our children, our parents, our communities, and our future. I dream of a future that says if one works a full time job 

5 days a week, that on the weekend I can afford to take my family out to a movie, 

and that at the very least I can afford groceries for the month. I am working very 

hard and I simply cannot make ends meet. Let’s invest in regular families like mine 

so that we all can hope for a better future. Thanks so much for listening. 

PREPARED STATEMENT OF JOHN COX 

NEWBERG, OREGON, SUBJECT OF DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

JUNE 6, 2013 

My name is John Cox from Newberg, OR. I want to thank everyone for the opportunity to speak on behalf of the deteriorating middle class. I’m sure you will understand that I’m just a humble representative of the millions of families that have 

been placed in dire straits since the recession. 

I was raised from childhood to pursue the ‘‘American Dream,’’ and to believe that 

the United States of America was the greatest Nation on earth. My father, grandparents, school, church, and community instilled this American Dream mantra in 

me. 

‘‘Work hard,’’ they’d say. 

‘‘Get a college education so that your family can live more comfortably!’’ 

‘‘Save money for the future!’’ 

‘‘Volunteer and give time to your community.’’ And helping my neighbors isn’t 

simply a slogan to me. 

And my father’s famous words, ‘‘Take care of your job and the job will take care 

of you.’’ 

I knew the rules and tried to live by the rules as they were laid out to me. I took 

seriously the expectations that were placed on me by my Government, my community, and my family. 

Working hard was not exactly a choice. I was raised for most of my childhood on 

a cattle ranch. Winters required getting up at 4 a.m. to feed our cows before school 

and feed again before our head hit the pillow in the evening. Spring wasn’t easy 

either as we would take shifts during the night checking on the cows during calving 

season. My brother and I not only fought over whose turn it was to wash the dishes 

but whose turn it was to milk the family milk cow. 

My father was college educated. It wasn’t an option but almost mandatory for me 

to go to college. I paid my way through college by working full-time jobs, commercial 

fishing in Alaska, and even sweeping Mt. St. Helens volcanic ash out of parking 

lots. There were times that I was working two jobs while still attending school. 

Through hard work and discipline I managed to get my way through school without 

any financial assistance from my Government or family. Something I was proud of 

at the time. 

Since the time I was 12 years old in 1972, until October 2008, I was never without 

a job. ‘‘Work hard . . . .’’ ‘‘Take care of your job and your job will take care of you 

. . . .’’ 

44 

I played by the rules. I followed the advice of family, financial advisors, and the 

Government. I lived within my means in pursuit of the American Dream. 

Twelve years ago I invested in a house that was supposed to be the home for my 

family. I saved for retirement in programs like the 401(k) that was partially set up 

by our U.S. Government. I made sure I had a 6-month emergency fund in case 

something catastrophic occurred to my family. My credit rating was somewhere between very good and excellent. I paid my Government taxes with the confidence that 

it was not only going to be used for the social fabric of all of the U.S. citizens, but 

that it was also to provide a safety net for catastrophic situations. 

Then the economy tanked—and I was laid off from a $60,000 a year Cost Accountant position in October 2008. I wasn’t too concerned because I hadn’t gone more 

than a week without a job in over 30 years. I had over $35,000 in my emergency 

fund to supplement any bills that I owed while looking for my next job. Why worry. 

I stayed positive when a month passed without employment. I gritted my teeth 

but still smiled when 6 months passed. 

When my $35,000 emergency fund was exhausted, I cashed in my 401(k), which, 

after early withdrawal penalties, netted me nearly another $35,000. It was important for me to continue to pay my mortgage and my bills. 

I finally succumbed to the realization that I needed help from the U.S. Government and applied for unemployment benefits around March of 2010. Mortgage and 

monthly bills were no longer being paid as I had to transition to survival mode. 

I’ve been out of work for over 3 years now. Companies aren’t anxious to hire 

someone my age. And Wells Fargo bank is in the process of foreclosing on my house 

that I’ve invested 12 years into, as well as a significant downpayment. This house 

isn’t so much a home for me but it’s an investment to support my Down’s syndrome 

boy, Geral, during his adult life. 

I feel guilty because debts have gone unpaid. I know there are other families that 

are being affected by me not being able to honor my debts. They might be faceless 

but I know they are out there. 

Still, I haven’t given up and I don’t sit on my hands. I continue to apply for jobs 

with the hope that I can again be a contributing part of American society. I have 

found, however, that jobs similar to my Cost Accounting profession are now only 

paying $35,000 a year instead of the $60,000 a year salary of 4 years ago. Still, I 

would gladly accept the lower salary. 

I have even applied for minimum wage jobs. The hours have to be conducive to 

being able to work while my boy is in school. Minimum wage does not pencil out 

for the breadwinner of the family. How can the Government expect me to earn minimum wage, pay day care for my Down’s syndrome boy, and put food on the table? 

Until fair wage jobs reappear, I need to put food on the table and keep a roof over 

our heads. But the policies that are being handed down and, more importantly, the 

lack of action on the part of our Government, makes it impossible to do so. I feel 

that it is time for our Government to live up to their end of the social contract. That 

was the bargain that millions of suffering people around the United States expect. 

I understand that funding cuts for the SNAP food stamp program are being debated. How can this even be a possibility when people are going hungry due to no 

fault of their own? 

I know first hand that help for homeowners facing foreclosure is seriously lacking. 

The Federal Government bailed out all the banks and then the banks simply pocketed the money without any penalty, and without helping folks like me all across 

this country. 

Due to no fault of our own, people like myself are drowning without a life preserver being thrown our way. What happened to that ship that we call the ‘‘American Dream’’? 

Please help. 

PREPARED STATEMENT OF PAMELA THATCHER 

TUALATIN, OREGON, SUBJECT OF DOCUMENTARY MOVIE ‘‘AMERICAN WINTER’’ 

JUNE 6, 2013 

Chairman Merkley, Ranking Member Heller, and Members of the Subcommittee: 

Thank you for inviting me to testify before your Committee to share my experience 

and perspective on the future of middle class families. I never would have imagined 

that I would fly to Washington, DC, to testify before a U.S. Senate committee. I also 

never imagined I would go to a charity desperate for diapers for my two children, 

or need to get food stamps, but that’s exactly what I found myself doing in the fall 

of 2011 after my husband Brandon lost his job and all of our savings were gone. 

45 

The decision to reach out for help was incredibly difficult for my husband and I, 

but at that point we had no choice. I was a mom in survival mode and I knew I 

would do anything to take care of my two babies, even if that meant accepting assistance. You see, it wasn’t supposed to ever come to that. Brandon and I took our 

time planning our family and our future. 

Before starting a family I taught preschool for 9 years. It was a great job. I loved 

working with the children and being part of the community. The money I earned 

from that job helped us build a small nest egg and make the transition to a oneincome household once we started our family. The prospect of solely relying on 

Brandon’s income wasn’t scary because he had a good paying job and he had never 

been without work. Being unable to pay our bills just wasn’t a reality we contemplated. 

Three months after our second child was born Brandon was without an income 

for the first time in his life. At first we weren’t too worried. It was a setback but 

he had a strong work history and good connections in the community, so we expected he would find work within a week or so. Unfortunately this was in the midst 

of the great recession and weeks without work or a paycheck soon turned into 

months. 

We did what anyone would do in our situation—we cut back on every possible 

extra expense and carefully used our savings to pay for the basics like rent, food 

and diapers for our two little boys. It wasn’t long before cutting corners was no 

longer enough and we were faced with the grim prospect of going without or turning 

to social services and Government assistance for help. Thank goodness there was 

help when we needed it. 

To be honest, I used to think it was easy for people who depended on Government 

programs. No work and free food. I had compassion and volunteered, but I thought 

the public benefit system bred abuse. Now I know there is a different story. The 

public benefit programs like SNAP, WIC, TANF, and Oregon Health Plan help keep 

families like me just barely above water. This experience has given me a new understanding and appreciation for what these social safety net programs mean for millions of middle class families that are only a few steps away from poverty, and the 

real possibility of homelessness. 

Being in ‘‘American Winter’’ opened my eyes to how many people are living on 

the financial edge. I’ve had strangers say thank you because they recognize me from 

the film. One woman with children in tow came up to me in the grocery store parking lot to give me a hug. She explained that she was in the same situation and felt 

so alone and afraid. The stress of not knowing how you are going to pay rent takes 

a tremendous toll on you and so many people hide their financial struggle out of 

shame. For her it was comforting to know that she wasn’t alone. I’ve heard the 

same from my friends after I posted about ‘‘American Winter’’ on Facebook. People 

I thought were doing fine are in the same situation as Brandon and I and they are 

grateful to finally be able to talk about it. 

I feel that families across this country are in crisis. Something has gone wrong 

when hardworking people are worried about how to feed their families. Something 

has gone wrong when it feels like there is no longer any hope for middle class families, and instead of investing in programs that will help families get back on their 

feet, our elected officials are making cuts. When you cut funding for SNAP, TANF, 

or WIC you are making the decision to take away what little support people have 

to keep the lights on, or food on the table. I hope you will consider this and the 

stories shared in ‘‘American Winter’’ as you’re making decisions about how to spend 

and what to cut. My husband eventually was able to find another job, although he 

is making far less than what he used to make. Now, even with full time work, we 

still struggle to make ends meet. My experience has taught me that when a family 

member loses a job, the assistance we received is a true lifeline, and the difference 

between sinking and having the chance to get back on our feet again. 

Thank you again for taking time to hear from me and consider what it’s like for 

formerly middle class families who just need to know there is some hope. 

PREPARED STATEMENT OF ATIF MIAN 

PROFESSOR OF ECONOMICS AND PUBLIC POLICY, PRINCETON UNIVERSITY

JUNE 6, 2013 

I thank the Senate Subcommittee on Economic Policy for inviting me to talk about 

the role of financial markets on the macro economy and middle class. My discussion 

on this topic is based on my research over the years with Amir Sufi of University 

of Chicago Booth School of Business. 

46 

Well-functioning financial markets are extremely important both for a healthy 

economy and a strong middle class. The U.S. in many ways is the envy of the world 

in terms of having the most sophisticated financial market. We need to protect and 

strengthen this advantage, and correct any flaws that remain. The 2007–09 financial crisis revealed a fundamental weakness in this regard that needs to be addressed. 

The key weakness of our financial architecture today is the inability of standard 

mortgage contracts to adjust to a changing macro environment. I describe how this 

characteristic of mortgage debt devastated the U.S. economy in general, and the 

American middle class in particular in Section I of my testimony. I explain how 

mortgage debt weakened the middle class and the economy via three distinct channels. (A) The concentration of wealth losses on the indebted homeowners. (B) The 

amplification of wealth losses through foreclosure externalities. (C) The translation 

of wealth losses into weak aggregate demand and high unemployment through the 

aggregate demand externality. 

Section II presents a specific proposal: Shared Responsibility Mortgages (SRMs). 

SRMs are aimed at removing the basic flaw in existing mortgage contracts. I discuss 

how SRMs work and how they provide significant macro and social benefits—particularly to the middle class. I also discuss some of the ways in which the Government can help facilitate their introduction. 

Section I: House Price Collapse, Mortgage Debt, and the U.S. Economy 

It is clear in hindsight that market participants had become over-exuberant with 

respect to housing during the 2000s. However, why was the correction in house 

prices—starting in 2007—so destructive for the overall economy? I discuss the three 

channels driven by the role played by mortgage debt. 

A. Housing Crisis and the Destruction of Middle Class Wealth 

For many Americans, home equity is their only source of wealth. If house prices 

decline, then their wealth position becomes seriously impaired. They may be counting on their home equity for retirement, or even to help pay for a child’s college education. And a dramatic decline in house prices is just as unexpected as a tornado 

barreling down on a small town in Kansas. 

But when it comes to the risk associated with a collapse in house prices, the financial system’s reliance on mortgage debt means that homeowners have no insurance against the financial calamity they face. Understanding how debt concentrates 

house price risk on homeowners is the first step in understanding why debt leads 

to severe economic downturns. 

Debt plays such a common role in the economy that we often forget that it is an 

extremely harsh form of financing—especially in terms of its distributional consequences in the event of a downturn. The fundamental feature of debt is that the 

borrower must bear the first losses associated with a decline in asset prices. Thus, 

if a homeowner buys a home worth $100,000 using an $80,000 mortgage, then the 

homeowner’s equity in the home is $20,000. If house prices drop 20 percent, the 

homeowner loses $20,000—their full investment—while the mortgage lender escapes 

unscathed. 

The middle class tend to be the typical homeowner with a mortgage. In the example above, the middle class homeowner loses 100 percent of their net wealth, while 

the lender—typically wealthier—does not lose anything. This is the fundamental 

feature of debt—it concentrates the losses on the junior claim. 

Now let’s take a step back and consider the entire economy of borrowers and savers. When house prices in the aggregate collapse by 20 percent, the losses associated 

with that collapse are concentrated on borrowers in the economy. Given that borrowers tend to be individuals that already had low net worth before the crash 

(which is why they needed to borrow in the first place to buy their home), the concentration of losses on borrowers devastates their financial condition. They already 

had very little in terms of net worth, and now they have even less. 

In contrast, the savers, which are typically high net worth individuals with a 

large amount of financial assets and little mortgage debt, experience a much less 

severe decline in their net worth when house prices collapse. This is because they 

ultimately own—through their deposits, bonds, and equity holdings—the senior 

claim on houses in the economy. House prices may collapse so far that even the senior claim experiences losses, but the losses will be much less severe than the devastation to the borrowers’ net worth. 

As this example makes clear, the concentration of losses on debtors is inextricably 

linked to wealth inequality. When house prices collapse in an economy with high 

debt levels, the collapse amplifies wealth inequality because low net worth individuals experience the lion’s share of the losses. 

47 

During the Great Recession, house values collapsed by $5.5 trillion: an enormous 

decline relative to the annual economic output of the U.S. economy of $14 trillion. 

Given such a massive hit to house prices, the net worth position of the U.S. household sector obviously suffered. But what is less obvious was the distribution of those 

losses: who actually lost wealth when housing collapsed? 

Let’s start with an examination of the net worth distribution in the United States 

as of 2007. A household’s net worth is composed of two main types of assets: financial assets and housing assets. Financial assets include stocks, bonds, checking and 

saving deposits, and other business interests the household owns, while housing is 

typically the value of the home the household owns. Net worth is defined to be financial assets plus housing assets minus any debt the household has. Mortgages 

and home equity debt are by far the most important components of household debt, 

making up 80 percent of all household debt as of 2006. 

As of 2007, there were dramatic differences in leverage and the composition of net 

worth across U.S. households. Homeowners in the bottom 20 percent of the net 

worth distribution—the poorest homeowners—were highly levered. Their leverage 

ratio, or the ratio of total debt to total assets, was near 80 percent. Continuing the 

example at the beginning of the chapter, if the household had a home worth $100 

thousand and a mortgage worth $80 thousand and no other assets, the households 

would have a leverage ratio of 80 percent. 

Moreover, the poorest 20 percent of homeowners relied almost exclusively on 

home equity in their net worth. Their ratio of home equity to total assets was 18 

percent, while the ratio of other net worth to total assets was only 4 percent. Or 

in other words, about $4 out of every $5 of net worth was in home equity. In a nutshell, poor homeowners had almost no financial assets coming into the recession. 

They had only home equity, and that home equity was highly levered. 

The rich were different in two important ways. First, they were far less levered 

coming into the recession. The richest 20 percent of homeowners had a leverage 

ratio of only 7 percent, compared to the 80 percent leverage ratio of the poorest 

homeowners. Second, their net worth was overwhelmingly concentrated in nonhousing assets. While the poor had $4 of home equity for every $1 of other assets, 

the rich were exactly the opposite with $4 of other assets for every $1 of home equity. Most of their wealth was in financial assets such as money market funds, 

stocks, and bonds. 

Chart 1 shows these facts graphically. It splits homeowners in the United States 

as of 2007 into five quintiles based on net worth, with the poorest households on 

the left side of the chart, and the richest households on the right side. The chart 

shows the fraction of total assets each of the five quintiles has in debt, home equity, 

and financial wealth. There is a very striking pattern. Poor homeowners, those with 

low net worth, are much more levered and rely exclusively on home equity in their 

wealth. As we move to the right of the chart, leverage declines and financial wealth 

increases. 

48 

This pattern isn’t surprising. Remember, a poor man’s debt is a rich man’s asset. 

When a poor homeowner gets a mortgage, we tend to think that a bank is lending 

to the homeowner. But the bank must get the money from somewhere! Ultimately, 

the rich own the bank. They own the bank through their financial asset holdings, 

which include the stocks, bonds, and deposits of the banking sector. As a result, as 

we move from poor homeowners to rich homeowners, debt declines and financial assets rise. This captures how the rich, through the financial system, are ultimately 

lending to the poor. As I mentioned above, the use of debt and wealth inequality 

are closely linked. 

Now that we understand the net worth position of homeowners as of 2007, we can 

assess who was affected the most by the collapse in asset prices during the Great 

Recession. House prices for the Nation as a whole fell 30 percent from 2006 to 2009. 

Further, they stayed low, only barely recovering toward the end of 2012. While stock 

prices fell dramatically during 2008 and early 2009 they eventually rebounded 

strongly afterward, and bond prices actually rose dramatically throughout the recession. Thus household holding financial assets—stocks and bonds—were protected 

from the brunt of the crisis, while households exposed to housing and debt suffered 

large losses. 

So which homeowners were hit hardest by the Great Recession? Chart 2 puts 

these facts together and shows one of the most important patterns of the Great Recession. It shows the evolution of household net worth for the bottom quintile, the 

middle quintile, and the highest quintile of the homeowner wealth distribution. 

49 

The net worth of poor homeowners was absolutely hammered during the Great 

Recession. From 2007 to 2010, net worth collapsed from $30K to almost $0K. The 

decline in net worth during the Great Recession completely erased all of the gains 

from 1992 to 2007. This is exactly what we would predict given the reliance on 

home equity and their large amount of debt. The financial system’s reliance on debt 

concentrated losses directly on the poorest households. 

In contrast, rich homeowners were hardly touched. Their average net worth declined from $3.2M to $2.9M. While the dollar amount of losses were considerable, 

the percentage decline was negligible. Further, the decline wasn’t even large enough 

to offset any of the gains from 1992 to 2004. The rich made out well because they 

held financial assets that performed much better during the recession than housing. 

They also made out well because many of the financial assets were senior claims 

on houses. House prices hammered poor households because they were indebted; 

house prices affected the rich by far less because they ultimately held the senior 

claim on homes. 

Wealth inequality was already severe in the United States before the recession. 

As of 2007, the top 10 percent of the net worth distribution had 71 percent of the 

wealth in the economy. This was up from 66 percent in 1992. In 2010, the share 

of the top 10 percent jumped to 74 percent, which is consistent with the patterns 

shown above. The rich maintained their wealth while the poor got poorer. 

Many have discussed the trends in income and wealth inequality. But an often 

over-looked aspect of this issue is the role of debt. As I have shown here, a financial 

system that relies excessively on debt will amplify wealth inequality when asset 

prices collapse. Debt and wealth inequality are closely linked. 

B. The Foreclosure Externality 

For many households during the Great Recession, the value of a home dropped 

by more than the value of the homeowner’s equity. The homeowner then became 

‘‘underwater’’ or ‘‘upside-down’’ on his mortgage. As of 2011, 11 million properties 

with a mortgage—or 1 in 4 homeowners with a mortgage—had negative equity. 

Not only was a homeowners equity stake completely wiped out, but if he chose 

to sell the home, he would have had to pay the difference between the mortgage 

and the sale price to the bank. Faced with this dire circumstance, many homeowners decided to walk away from the home, allowing the bank to foreclose. 

Economists have long appreciated that debt affects everyone when asset prices 

collapse, not just the indebted. The fire sale of assets at steeply discounted prices 

is the most common example. A fire sale refers to a situation in which a debtor or 

creditor is willing to sell an asset for a price far below fundamental market value. 

In the context of housing, a fire sale typically occurs after foreclosure. When a bank 

takes the property from a delinquent homeowner, they sell the property at a steeply 

discounted price. 

50 

When the sale occurs, the fire sale price, which is typically far below market 

value, is used by home buyers and appraisers to estimate the price of all other 

homes in the area. As a result, all of the homes in the area suffer a decline in price. 

Even homeowners with no debt at all see the value of their homes decline. Consequently, financially healthy homeowners may be unable to refinance their mortgages or sell their home at a fair price. Over the last few years, many homeowners 

in the United States have been shocked by a very low appraisal of their home during a refinancing. This low appraisal was typically the direct result of an appraiser 

using a fire sale foreclosure price to estimate the value of all homes in the neighborhood. 

Foreclosure externalities are among the most insidious effects of debt financing. 

A negative externality occurs whenever there are negative effects of a private transaction between two parties that are not fully borne by the two parties. In a foreclosure, a bank selling the property does not internalize the negative effects of the 

fire sale on the net worth of all the other homeowners in the area. As a result, the 

bank is willing to sell at the lower price, even though society as a whole would not 

want the bank to do so. 

Research demonstrates that foreclosures significantly exacerbated the housing 

downturn during the Great Recession. In 2009 and 2010, foreclosures reached historically unprecedented levels. The previous peak before the Great Recession was 

in 2001 when about 1.5 percent of all mortgages were in foreclosure. During the 

Great Recession, foreclosures tripled relative to their prior peak: Almost 5 percent 

of all mortgages outstanding were in foreclosure in 2009. Daniel Hartley at the Federal Reserve Bank of Cleveland has estimated that between 30 and 40 percent of 

all home sales in 2009 and 2010 were foreclosures or short sales. 

In research with Amir Sufi and Francesco Trebbi, we estimated the negative effects of foreclosures on house prices and household spending. We used the fact that 

some States have much more lenient foreclosure policies than others. In some 

States, the lender must go through the courts to evict a delinquent borrower from 

the home. In other States, no such court action is required. Foreclosures are much 

faster in States that require no court action. As a result, there were far more foreclosures in some States than others during the Great Recession, and this difference 

can be used to estimate the effects of foreclosure on the local economy. 

Using these differences across States, we found large negative effects of foreclosure during the Great Recession. Given the nationwide decline in house prices 

of 30 percent, our research suggests that house prices would have only fallen by 

22.5 percent from 2007 to 2009 if States had implemented more lenient policies toward foreclosing. Further, by pulling down house prices, foreclosures dampened consumption and home building. We found that one-fifth of the decline in both spending 

on autos and residential construction was the direct result of foreclosures. 

When the housing bubble burst, there was no doubt a need for reallocation of resources in the economy. Too many renters had become homeowners. Too many 

homeowners had moved into homes they could not afford. Too many homes had been 

built. But when the crash occurred, the debt-ridden economy was unable to reallocate resources in an efficient manner. Instead, debt led to fire sales of properties 

which only exacerbated the destruction of net worth. Debt was the crucial problem. 

C. The Aggregate Demand Externality 

The large loss in wealth of indebted households forces them to cut back on their 

overall spending for two reasons: they feel the need to save given loss to wealth, 

and they have poorer access to credit markets due to the loss of housing collateral. 

The contraction in spending is particularly severe because wealth losses tend to disproportionately fall on indebted households and households with low levels of net 

wealth. 

In my work with Amir Sufi, we show that the propensity to cut back spending 

in the face of wealth losses is three times as large for poorer households and households with high levels of leverage. Thus in terms of spending, the rich and less 

levered have more capacity to absorb losses. However, as I have already explained, 

the unique characteristics of a mortgage debt contract impose losses on the indebted 

and the less wealthy. This is inefficient from an aggregate demand management 

perspective. 

When debtors sharply pull back on household spending, the economy tries to boost 

demand from elsewhere. One possible channel is to convince creditors to consume 

more by lowering the interest rate. However, if this is not possible even at zero interest rates, then the economy is stuck in a ‘‘liquidity trap’’ with below-capacity aggregate demand. 

The decline in aggregate demand due to wealth loss for the indebted soon becomes 

a problem for everyone in the economy—whether someone borrowed initially or not. 

51 

The reason is that one person’s demand is another person’s job. In a paper with 

Amir Sufi, we show that the decline in spending by households suffering the loss 

in wealth led to sharp decline in employment everywhere in the economy. In fact 

we can quantitatively show that majority of the job losses during the 2006–2009 period were driven by this particular aggregate demand externality. 

An important lesson from this example is that we are in this mess together. Even 

households in the economy that stayed away from toxic debt during the boom suffer 

the consequences of the collapse in household spending during the bust. For example, many auto plants in the United States are located in areas of the country that 

completely avoided the housing boom and bust: Indiana, Ohio, and Kentucky. Yet 

auto workers in these States suffered during the Great Recession because highly 

levered household in other parts of the country stopped buying cars. 

Section II: Shared Responsibility Mortgages (SRMs)—A Policy Proposal 

I have highlighted three aspects of mortgage debt that devastated middle class 

wealth, lowed aggregate demand and massively increased job losses in the U.S. 

economy during the 2007–09 financial crisis. Can these outcomes be prevented while 

still maintaining a healthy mortgage market? Yes, I believe that is possible. I outline my proposal (again a result of joint work with Amir Sufi) below and discuss 

how SRMs would have protected both the American middle class and the overall 

economy. 

A. Shared Responsibility Mortgages (SRMs) 

Consider an $80,000, 30-year fixed rate mortgage loan at 5 percent interest rate, 

for a house bought for $100,000. The homeowner puts 20 percent downpayment for 

her house and starts paying an annual mortgage payment of $5,204 to the lender. 

An SRM works in exactly the same way as the fixed rate mortgage described 

above with a couple of important differences. First, there is downside protection for 

the homeowner based on her local house price index. A number of market participants produce local house price indices (e.g., at the level of the zip code). The Government can monitor and certify the production of such a house price index on 

which the downside protection of an SRM can be contracted. 

Say the local house price index were 100 when the mortgage was originated. Then 

if at the end of any year during the life of the mortgage, the local house price index 

drops below 100 by X percent, the mortgage payment due the following year will 

also decline by X percent. For example, if the local house price declined by 10 percent after the first year to 90, mortgage payment in the second year will decline 

by $520.4 while maintaining the original amortization schedule for principal. If 

house price index goes above 100 in subsequent years, mortgage payment will also 

go back up to its original $5,204. 

Such a contract is very easy to implement. All we need is a local house price index 

which is already available. The provision of downside protection to the homeowner 

comes at the expense of the lender and will therefore increase the up-front cost of 

the mortgage in practice. How large is this cost, and can we somehow compensate 

the lender sufficiently for bearing this cost? 

The cost of providing downside protection depends on expected annual house price 

growth and volatility. Historically, house prices in the U.S. have grown at an annual 

rate of 3.7 percent with a standard deviation of 8.3 percent. Using mortgage pricing 

formulas, one can show that the cost of providing downside protection will be 

around 1.4 percentage points. This is a substantial increase in cost of financing. 

However, we can completely eliminate this up-front cost by introducing a second innovation in our SRM contract. 

The second important feature of an SRM contract is a 5 percent capital gain sharing provision. The capital gain provision implies that whenever the home owner 

sells the house—or refinances the mortgage—the lender collects 5 percent of net 

capital gain on the house. Since capital gain on owner-occupied housing is tax-exempt anyways, homeowners still gets to keep 95 percent of any gain in home value. 

Moreover, since the lender can securitize a large number of mortgages together, he 

can completely diversify the uncertainty of when a particular homeowners sells his 

or her property. On average the lender will receive a fairly stable flow of 5 percent 

capital gains from his pool of mortgages. 

Is the 5 percent capital gain provision sufficient to eliminate the 1.4 percent up 

front cost added due to the downside protection offered by the lender? We can once 

again turn to mortgage pricing formulas for help. Given historical house price 

growth in the U.S., it turns out that a small 5 percent capital gain share is more 

than sufficient to compensate the lender. In fact, with a 5 percent capital gain rule, 

the lender comes out ahead by 81 basis points. 

52 

B. The Benefits of SRMs for Middle Class and the Macro Economy 

Suppose instead of traditional mortgage contracts, all mortgages were SRMs in 

2007. What would have been the impact on the middle class and the overall U.S. 

economy? The research cited in Section I of my testimony gives us the answers. 

First, the wealth of the middle class would have been naturally protected. Suppose a homeowner has 20 percent equity in his home. A 20 percent fall in house 

prices would have translated into a 20 percent reduction in his net wealth with 

SRMs, instead of the 100 percent reduction in net wealth with traditional mortgage. 

We would thus not have had the devastating increase in wealth inequality that we 

saw in Section I. 

Second, everyone would have benefited in the case of SRMs since we would have 

completely avoided the foreclosure mess. The costs associated with foreclosure externality discussed in Section I were all driven by forced sale of distressed homes. 

However, with SRMs, no one is underwater as mortgage payments naturally and 

automatically adjust to lower debt burden and keep homeowners in their home. 

Foreclosure prevention helps everyone by stabilizing house prices quickly and reducing overall wealth loss. 

Third, everyone benefits due to the large reduction in aggregate demand externality discussed in Section I. The reduction in aggregate demand externality is driven by three channels: (i) Foreclosure avoidance raises house prices, thus boosting 

spending. (ii) Wealth losses are now more equitably shared between lenders and 

borrowers. Since borrowers have significantly higher marginal propensity to consume than lenders, a more equitable distribution of losses raises aggregate spending. (iii) The increase in spending due to these two reasons lead to smaller job 

losses, which further help support a higher level of aggregate demand. 

The macro benefits of SRMs can also be understood by our own calculations that 

show that most of the job losses and reduction in aggregate GDP could have been 

avoided if SRMs were in place. 

SRMs should be attractive for a number of additional reasons as well. Our proposed mechanism is entirely market-based. There is no subsidy from the tax payers 

involved—ever. In fact, in a way the SRMs help reduce budget deficits in the long 

run. A significant share of the recent increase in U.S. Government debt has been 

driven by countercyclical fiscal deficits. The need for such fiscal deficits is greatly 

reduced due to the positive macro benefits of SRMs. Of course as always we need 

a sound banking system with sufficient capital, and all efforts to boost bank capital 

need to be encouraged. 

Another advantage of SRMs is that they give the lender a direct interest in worrying about potential bubbles. In particular, if many of the lenders fear that the 

market might be in a bubble, they will raise the interest rate for new mortgages 

since these mortgages are more likely to require downside protection. There is thus 

automatic and market-based ‘‘leaning against the wind’’. Not only do SRMs reduce 

the negative effects of a bursting bubble, but they also reduce the likelihood of those 

bubbles appearing in the first place. 

What can the Government do to promote SRMs? There is a vigorous debate regarding the interest deductibility of mortgage interest. Given the reliance of the 

housing market on this particular deduction, it is safe to assume that this deduction 

will largely remain in place. However, given the macro benefits of SRMs, I believe 

there is a strong social case to be made that the tax deductibility of interest should 

only be given to SRMs. If the Government made such a switch, the market would 

naturally move towards SRMs. Both the middle class and the U.S. economy would 

be better protected as a result. 

Bibliography 

Mian, Atif R., and Amir Sufi, 2009. ‘‘The Consequences of Mortgage Credit Expansion: Evidence From the U.S. Mortgage Default Crisis’’, Quarterly Journal of Economics 124: 1449–1496. 

Mian, Atif R., and Amir Sufi, 2011a. ‘‘House Prices, Home Equity-Based Borrowing, 

and the U.S. Household Leverage Crisis’’, American Economic Review, August. 

Mian, Atif R., and Amir Sufi, 2011b. ‘‘Consumers and the Economy, Part II: Household Debt and the Weak U.S. Recovery’’, FRBSF Economic Letter, January 18, 

2011. 

Mian, Atif R., and Amir Sufi, 2011c. ‘‘What Explains High Unemployment? The 

Deleveraging–Aggregate Demand Hypothesis’’, Working Paper. 

Mian, Atif R., Kamalesh Rao, and Amir Sufi, 2011. ‘‘Deleveraging, Consumption, 

and the Economic Slump’’, conditionally accepted, Quarterly Journal of Economics. 

Mian, Atif R., Amir Sufi, and Francesco Trebbi, 2011. ‘‘Foreclosures, House Prices 

and the Real Economy’’, NBER Working Paper #16685. 

53 

PREPARED STATEMENT OF AMY TRAUB 

SENIOR POLICY ANALYST, DEMOS

JUNE 6, 2013 

54 


I. INTRODUCTION 

II. THE VIEW FROM THE HOUSEHOLD LEVEL 

A. Stagnating Incomes, Rising Costs 

B. The New Price of Entry to the Middle Class, Now Priced Out: Higher Education 

C. Weakened Employee Protections Make It Harder to Work Your Way Into the Middle 

Class 

D. Family Policy Lags Behind Changing Families 

E. Households Borrowing to Make Ends Meet 

F. Retirement System Working For Employers, Bankers - Not Retirees 

G. The Debt-for-Dlploma System Burdens the Future Middle Class 

III. THE MACRO·ECONOMIC VIEW: FOUR MEGA·TRENDS INADEQUATELY 

ADDRESSED 

A. Increasing U.S. Dh'ersity Without a Commitment to Equlty 

B. "Free Trade" Globalization Trades Away Middle-Class Jobs 

C. The Financiallzation of the Economy 

D. Increased Employer Resistance to Employee Collective Bargaining 

IV. THE DECLINE OF THE MIDDLE·CLASS DEMOCRACY 

A. Different Incomes, Different Priorities 

B. Unequal Political Voiee 

V. POLICY RECOMENDA TIONS 

A. Strengthen Pathways to the Middle Class 

B. Limit the Economic Policy-Distorting Innuence of Money in Politics 

C. Address Class Gaps in Voting by Expanding the Freedom to Vote 

2 
55 


I. INTRODUCTION 

Widely shared middle--£Iass prosperity is a signature of American society. It has made America me most 

hopeful and dynamic country on eanh and it is a foundation of strong democracy. 

Yet today, America's middle class is in trouble-and those troubles long preceded the financial crash of 

2008 and the downturn that followed. As a result of major economic and policy changes over the past 

three decades, the traditional routes into !he middle class have become more difficult to travel and 

security has eroded for those already in the middle class. Many jobs do not pay enough to cover basic 

living expenses, much less allow workers to save money and build assets for the fulUre. In fact, a quaner 

of full-time working-age adults are still not earning enough money to meet economic needs like housing, 

utilities, food, health care, and transportation for themselves or their famili es.] 

A college education has become ever more critical to moving up the income ladder-even as it has also 

become less affordable and the earning power of a college degree has stagnated. Building significant 

wealth assets for retirement or to help the next generation remains an impossible dream for millions. 

Many households are instead mired in debt In short, too many people who play by the rules and do 

everything right fmd that they cannO[ climb into the middle class-or stay there. 

The hard economic times of the past few years have compounded the long accumulating challenges 

facing the middle class. Jobs are harder to conle by amid extended high unemployment. Many jobs lost 

during the recession may never come back as a result of corporate policies that have eliminated jobs, 

moved them overseas, or replaced people with technology. The nation's new jobs disproportionately offer 

lower wages and fewer benefits than those they replaced. 

The dream of homeowners hip has turned into a nightmare for millions of Americans who have lost their 

homes to foreclosure or now find themselves owing more on their mortgages than their homes are worth. 

Retiremcnt savings accounts werc hit hard by the stock market plWlge of 2008-2009. Government 

3 
56 


investments in education and job training have declined amid draconian budget cuts and hundreds of 

Ihousands of once secure jobs in Ihe public sector have been eliminated. 

America's economy has been an awesome engine of wealth creaLion in the past Ihirty years, bUl the new 

prosperity has disproportionately gone to the wealthiest. Between 1979 and 2007, according to the 

Congressional Budget Office, American hou seholds in the highest-paid I percent of the income 

distribution saw after-tax income gains of 275 percenr ~whil e the 60 percent of Ihe households in the 

middle saw their incomes grow by just under 40 percent over this same period ? And, according to much 

research, social mObility - the very essence of the American idea - has stagnated or declined in the 

United States, with many young people struggling to replicate their parents' standard of Iiving.4 For 

exanlple, young men are earning to cents per dollar less than their fathers did 30 ye;:rrs ago, according to 

research from Demos.s A persistent and growing racial wealth gap, with historic inequities and injustices 

exacerbated by the recent iniquity of predatory lending, restricts opportunity for people of color to join or 

remain part of the nation's middle class. Princeton economist Alan Krueger observes that the economic 

data "Challenge the nOlion that the United States is an exceptionally mobile society. If the United States 

stands out in comparison with other countries, it is in having a more static distribution of income across 

generations wilh fewer opportunities for advancemem.'.6 

A host of public policy choices created this state of aff3irs - including tax cuts that dispropol1ion3tely 

benefitted the wealthy, fmancial deregulation, state divesttnent in public higher education, and decisions 

to let the minimum wage stagnate, to name only a few - and things Me likely to get worse without major 

policy corrections. The long-term trends that have moved America toward a postindustrial service 

economy are here to stay and, in fact, have accelerated during the economic downturn. Over the next two 

decades, the Deparunenl of Labor projects th3t the largest job growth will be in low-wage jobs offering 

little opportunity for advancement and that do nOl offer he3lth insurance or ply enough to allow workers 

to put money toward home equity and retirement savings. Meanwhile, most of the good jobs that are 

4 
57 


created will require a post-secondary education that is likely to remain out of reach for millions as college 

tuition costs continue to rise. 

Even as structural changes have imperiled the middle class, national action has been lacking. Over recenl 

decades, many political leaders have failed to reckon with a basic fact of the new economic era - for 

millions of Americans, no amount of individual effott or self-improvement or Ihrift can guarantee a 

secure m.iddle-class life. The American social contract - a promise of opportunity and security for those 

who act responsibly - is fundamemally broken. 

Dran13.tic new public policy iniliatives are needed to accomplish two broad interrelated goals: to ensure 

that all Americans have a chance to move into the middle class and, second, to ensure greater security for 

those in the middle class. Such initiatives must move far beyond incremental measures and be of 

sufficient scale to pennanently address the economic insecurilies of what is now a vast number of U.S. 

households. 

II. TIlE VIEW FROM TIlE HOUSEHOLD LEVEL 

A. Stagnalinglncornes, Rlsing Costs 

It used to be the case that a rising economic tide lifted all boats. In the years after World War II, as 

economic growth and productivity increased, the workers contribming to that prosperity saw 

conunensurate gains in wages, across the income spectrum. However, that connection has broken down 

over the last thirty years: while productivity increased 80.4 percent in the three decades between 1979 and 

2011 , the inflation-adju sted wages of the median worker grew just 6 percent, and that growth occurred 

exclusively as a result of the strong economy of the late 1990s, according to analysis by the Economic 

Policy Institute? Since 2000, the picture of earnings and income has become stillmore stark: despite a 

productivity increase of 22.8 percent between 2000 and 2011, median family income in the United States 

has dec/bled 6 percent, from $66,259 to $62,301, over the same periocl.8 

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58 


Part of the story is the increasing economic returns to education, which left workers without a college 

degree lagging further behind in income and employment. For example, as chronicled in Demos' State of 

Young America report, in 1980, a young man with a bachelor's degree earned roughly $9,100 more than a 

young man with a high school degree. Today, he earns $20,000 more, and the trends are similar among 

women. 9 However, a college degree has not entirely protected workers from declining wages in the years 

since 2000. Between 2000 and 2012, the wages of young college graduates fell 8.5 percent, translating 

into a decline of more than $3,000 for full-time, full-year workerslO This suggests that boosting college 

attainment, while critical, will not be sufficient by itself to restore middle-class wages or re-establish the 

link between economic growth and productivity and wage growth. 

A bigger part of the story has to do with the rising share of the nation's gross domestic product flowing to 

corporate profits rather than wages and the larger share of overall income going to the highest I percent of 

income earners. Until 1975, wages generally accounted for the majority of the nation's GOP, but by 2012 

wages had declined to a record low of 43.5 percent. 11 Research from Northeastern University finds that in 

the first seven quarters after the end of the Great Recession, American corporations received an 

astonishing 92 percent of the growth in real national income, while aggregate workers' wages and salaries 

actually declined by $22 billion and contributed nothing to national income growth. 12 

Contributions to National Income Growth, First Seven Quarters Post-Recession, 

2009-2QIl 

92% 0% 

Corporate Profits Wages & Salaries 

SOU R C E Center for Labor Market Studies, Northeostern UniverSity, May 2011 Demos.or« 

6 
59 


Personal income has become far more concentrated at the top, a trend that has also accelerated rapidly 

since the end of the Great Recession. Economist Emmanuel Saez finds that between 2009 and 20 II, the 

incomes of the highest-paid I percent of Americans grew by 11.2 percent while the incomes of the rest of 

Americans declined by 0.4 percent In effect, the top I percent captured 121 percent of the income gains 

in the first two years of the recovery.13 

Finally, while the real wage data above is adju sted for inflation, this story does not fully account for the 

cost of middle-class fundamentals, such as health care, child care and higher education, which have seen 

their costs grow far more quickly than inflation as a whole. For example, the average annual employee 

contribution to health premiums has tripled since 1999, growing from $31 S to $951 for singles and from 

$1,543 to $4,316 for family coverage. 14 The national average cost for center-based child care in 2011 was 

$8,900 for full-time care for an infant and $7,1 50 for full-time care for a preschoolerY Center-based child 

care fees for two children (an infant and a 4-year-old) exceeded annual median rent payments in ali SO 

states and the District of Columbia. 16 This is all the more troubling since according to the Center for 

Housing Policy, nearly one in four working households (renters and owners combined) also experienced a 

severe housing cost burden in 2011 , spending more than 50 percent of household income on housing 

costs, including utilities.

17 Meanwhile, at public four-year universities, average tuition has risen 126% (in 

real terms) since 1990. The American middle class, and workers aspiring to a middle-class SI3Jldard of 

living, are squeezed between stagnant and declining wages and higber costs for the fundamentals of a 

middle-class life. Aside from the major advances in health care coverage and affordability in the 

Affordable Care Act of 2009, policymakers have done little to address this new reality. 

B. The New Price of Entry to the Middle Class, Now Priced Out: Higher Education 

During the post-war industrial era, a post-secondary education was nOl required for a single breadwinner 

to support a family. For example, in 1970 male high school graduates earned a median income equivalent 

to $45,432 in tooay' s dollars- 32.5 percent more than they earn today.18 However, just as automation, 

7 
60 


trade liberalization and globalized manufacturing began to put downward pressure on lhe wages and job 

opponunities of non-college educated Americans, Slate and federal policymakers allowed college lO 

become less affordable to non-affluent families. Tuition at public 4-year schools has more lhan tripled in 

the past three decades, rising faster than either inflation or growth in family income. 19 The United States 

went from first in the world in degree-holders to eleventh in the course of one generation. 2() The 

enrollment gap between low-income families and high-income families is as high as it was three decades 

ago. Many hardworking students are priced out of pursuing and completing higher education- a 

fundamental component to upward mobility and opportunity in American society. And lhose who do 

enroll are leaving college with unprecedented levels of debt, often wilhout a degree in hand. 

A major factor in the rise of public college costs is declining slate support for higher education. Demos' 

research repon The Great COSt Shift fmds lhal, despite appropriating $75.6 billion for higher education in 

2010 (from $65. 1 billion in 1990), states actually devoted less of their wealth to higher education than 

they did just 20 years ago. After controlling for infl ation, states collectively invested $6. 12 per $1,000 in 

personal income in 2010, down from $8.75 in 1990, despile the fact that personal income increased by 

66.2 percent over that period. As a result, between the 1990 and 2009 academic years, lhe real funding 

per public full-time equivalent(FTE) student dropped by 26. 1 percem, falling from $8,608 to $6,360. 

Funding levels failing to keep pace wilh population growlh, as the largest generation since lhe Baby 

Boomers has come of college age against the backdrop of a nationwide trend away from taxes and public 

investment If states had provided the same level of funding as in 1990, total appropriations in 2009 

would have equaled approximately $102 billion, an amount 353 percent greater lhan the actual one?l 

Although increasingly large numbers of high school graduates enroll in some type of college, college 

completion has stagnated: today more than half of students who begin college never con1plete their 

degrees. Financial barriers are the primary reason why students do not finish college.

Zl The high 

cost of college is particularly prohibitive for students from lower-income families, and shifts away from 

need-based aid are only exacerbating the challenge. In 2010, just 36 percent of all federal student aid was 

8 
61 


MAX IMUM PEll GRANT AS A PERCENTAGE OF COllEGE COSTS 

80 % 69% 

60 % 

45% 

39% 

40 % 

20 % 

0 % 

...,.--. _ .. _, .... lfI r_ .. _",""",_ .. lOlq "'SoI. 

_" ...... _AolX"!'lr .. ' 

34 % 

Demos.org 

grant-based, down from 55 percent in 1980. Similarly, in 1980, the maximum Pell grant covered 69 

percent of the costs of a 4-year public college, compared to just 34 percent in 2010.23 

Rising tuition and limited financial aid has more students than ever financing their college education with 

debt and at ever-increasing amounts. In addition, students are struggling to meet rising college costs by 

enrolling part-time and working long hours. Two-thirds of community college students and 46 percent of 

four-year college students work more than 20 hours a week while attending school, greatly increasing 

their risk of dropping OUt.24 Lack of preparation at the high school level is another factor contributing to 

high drop-out rates. Our K-12 system often fails to graduate students ready for college, forcing many into 

costly remedial classes at the outset of their college education. 

9 
62 


C. Weakened Employee Protections Make It Harder to Work Your Way Into the Middle 

Class 

Americans believe that hard work should be rewarded- people who go to work every day should not then 

be forced to raise their families in poverty. Yel today nearly a quarter of working adults in the U.s. are 

laboring at jobs that do not pay enough to support a family ata minimally acceptable level. 25 Offering 

workforce development and training in order to ease mObility out of low-wage, no-benefit jobs is part of 

the solution, but fails to fully address the problem Regardless of how many training op{Xlftunities are 

available to individuals, millions of jobs as home health aides, food service workers, retail salespeople 

and other currently low-wage occupations will still exist and, in fac t, are projected to be among the 

nation's fa stest growing positions in the future?4 

It is important to acknowledge that the manufacturing jobs of the post-war era that helped build the 

nation's middle class required no more education than today's low-paid setvice jobs, and in fact, often 

less. However, those workers, mostly white and male, were able to bargain with employers to tum lowskilled factory jobs into family-supporting jobs with security and benefits, and the country prospered as a 

result. It remains to be seen whether today's low-paid workforce, which is disproportionately female, 

immigrant and people of color - those left out of the original post-war social comract - can likewise 

succeed in lransforming their jobs into decent jobs. If they can, the country as a whole stands to benefit. 

According to calculations in Demos' 2012 report, Retail's Hidden Potential, lifting the wage floor at the 

largest U.S. retailers (those with over 1,000 employees) to a minimum of $12 per hour would lift 1.5 

million Americans out of poverty or near-poverty, boost GOP and create a consmner stimulus generating 

100,000 - 130,000 jobs over a year and, if costs were passed on, only affect prices by an average of 7 to 

15 cents per shopping lrip.27 Jn addition, Demos has found that nearly 2 million of the country's 

!owest-paidjobs are undenvrinen by taxpayers through fede ral conlraclS, building leases, construction 

grants, health care spending and small business loans.28 

10 
63 


The nation must act to ensure that these jobs can, at minimum, lift families above the poverty line and 

provide basic workplace protections, in order to strengthen the noor for employment in the United States. 

By lifting the bottom of the nation's labor markel, we give working people a firm base from which they 

can work their way into the middle class. We also put a stronger backstop on the declining job quality of 

many fonnerly middle-class occupations. 

The current minimmn wage of$7 .25 an hour is a rate at which it is impossible for working Americans to 

independently pay their rent, feed their families or get needed medical care- much less save for the types 

of invesunents that make it possible to lift oneself into the middle class, like an education, a first home, or 

the chance to start a business. Indeed, the value of the minimmn wage today is nearly 30 percent below its 

peak in 1968.29 The majority of minimum wage earners are adults living in low-income households and 

making significant contributions to their family's total income. Assrnning a full-time work schedule, a 

minimum wage job at the current rate of $7.25 an hour brings in an annual income of$ 15,OSO-not 

enough to lift a family of three with a single working parent over the federal poverty threshold. The 

federal minimum wage for workers who are eligible to eam tips - such as food service workers, hotel 

bellhops, and nail service employees - has been stuck at $2.1 3 an hour for more than 20 years and is 

nearly 50 percent lower in real value. 

11 
64 


Real Value of the Federal Minimum wage, 1968-2012 (in 2012 dollars) 

$12.00 

$10.00 

$8.00 

$6.00 

$4.00 

$2.00 

$0.00 

SOU R C E , u.s. Department of Labar- Wage and Hour Division, Adjusted for inflation 

with the Consumer Price Index Demos.org 

As inadequate as the minimum wage is, millions of American workers bring home even less. Wage theft 

- the practice of illegally underpaying workers - has become commonplace in the low-wage labor market. 

A study of employment conditions in America's largest cities found that one in four low-wage workers 

were paid less than the minimum wage in a given week30 Altogether, wage violations (including paying 

less than minimum wage, making employees work off the clock, pilfering tips, misclassifying employees 

as independent contractors, and a host of other violations) robbed low-income employees of $2,634 

annually on average, out of total average earnings of just $17,616. In addition to harming the families of 

low-income workers, wage theft drains tax revenue, deprives neighborhood businesses of the income that 

low-income families would be spending, and puts law-abiding employers at a competitive disadvantage 

with those who break the law. 

12 
65 


In addition, several categories of workers are currently left out of even the nation's most basic labor 

protections. Domestic workers - a category that includes nannies, housekeepers, and elderly caregiversand farm workers are among the employees who have been deliberately excluded from the protections of 

federal and slate labor laws, originally due to discrimination against a labor force made up predominantly 

of women and people of color. Both industries now have a predominantly immigrant workforce and are 

generally low paid: a survey of domestic workers in New York found 26 percent earn wages that put them 

below the poverty line?] Fann workers experience poverty rates more than double that of other wage and 

salary workers?2 

D. Family Policy Lags Behind Changing Families 

In today's economy, families increasingly depend on the incomes of all adults in the household, yet many 

working people also have responsibilities as parenrs and caregivers. Public policy has nOf. kept up with the 

changing workforce: without access to paid leave, employees who need flexibility in their work lives to 

recover from illness or care for family members often face economic hardship. 

While still the typical primary caregiver, the number of women in the American workforce has expanded 

dramatical ly in the past decades: today nearly two-thirds of American families with children - including 

both married couples and single parents- have all adults in Ihe workforce.33 Indeed, wilhout the mass 

entry of mothers into Ihe workforce, the income picture for the American middle class would be far more 

dire than it is today. At the same time, 27 percent of American adults reports having caregiving 

responsibilities for another adult, such as a disabled or elderly relative, and most of Ihese caregivers are 

employed.J4 The proportion of the workforce with caring for elderly loved ones will continue to grow as 

the U.S. population ages. 

13 
66 


MOTHERS ' LABOR FORCE PARTICIPATION RATE, 1980-2010 

80% 

71% 

70% / ........... 

60% 

50% 

~ 

40% 

30% 34% 

20% 

0 M \0 0- N I/) 00 '<t " 0 00 00 00 00 0- 0- 0- 0 0 0 

0- 0- 0- 0- 0- 0- 0- 0 0 0 0 N N N N 

• WITH CHILDREN UNDER 18 YEARS OLD 

• WITH CHILDREN UNDER 3 YEARS OLD 

• WITH CHILDREN UNDER I YEAR OLD 

soule I Olmos Analys;s 0/ Currtnt Population SUM)! Annual Social ond economic Supplt~nf Demos_org 

Uncompensated caregiving responsibilities have very real economic consequences for working 

Americans. For example, an adult caring for his or her aging parent stands to lose as much as $303,880 

cumulatively in lost wages, Social Security, and pension benefits due to leaving the labor force early 

and/or working reduced hours because of caregiving responsibilities, according to one recent estimate35 

Yet it is the least-paid workers who are least likely to have access to any form of paid leave.36 Low-wage 

workers often hold jobs with rigid or unpredictable schedules that further exacerbate conflicts between 

work and family responsibilities. 37 Faced with the need to cope with a family illness or the birth of child, 

14 
67 


many workers see no option other than to quit or take time off that they know will result in being fired 

from their job?i 

Even short-tenn illnesses can become major economic setbacks for workers without paid sick days. Two 

out of three low-wage workers in the US. - the employees who can least afford to miss a paycheck - do 

not have a single paid sick day to recover from illness or take care of sick child or ative ~ These 

workers must choose between losing a day's payor coming to work sick, endangering their own health 

and the public. Many low-wage workers even risk losing their jobs and health coverage if they call in 

sick. According to one survey, one in six Americans says that they or a family member have been fired, 

suspended, punished, or threatened by an employer for missing work due to illness . .fl 

The Family and Medical Leave Act, passed in 1993, was intended to provide some security to famili es 

facing a sudden illness, providing family care, or welconung a new child. The law guarantees 12 weeks of 

unpaid leave to Americans working at businesses with 50 or more employees. Employers cannot replace 

workers on FMLA leave or retaliate against them in any way. Since its implementation, workers have 

used FMLA leave more than 100 million tirnes.

41 But four in ten American workers are not eligible 

because they work for smaller companies or have not been on the job long enough, and nullions of 

Americans cannot afford to take leave wilhout pay.42 Becau se only a small proportion of employees 

receive paid leave benefits directly from their employers, working Americans are still forced to risk their 

incomes and jobs to maintain their families.43 Employees of smaller companies lack any federal 

protection whatsoever. 

The U.S. policy of offering only a portion of its workers only unpaid leave to deal with major life events 

stands in sharp contrast to the rest of the world. For example, 169 countries guarantee some fonn of paid 

leave tonew parenlS-the US. joins Liberia, Papua New Guinea, and Swaziland on the shortlist of 

nations that leave workers alone to cope with this life-changing event and fail to mandate that employers 

provide paid time off when a child is bom.

41 

15 
68 


E. Households Borrowing to Ma ke Ends Meet 

SacrifICing today for a brighter future tomorrow has long been a key ingredient of middle-dass success. 

Home equity and savings nest eggs provide a buffer against hard times, and increase household economic 

stability, helping to fuel middle-class optimism and self-improvement. Household assets have a 

particularly powerful effect on how welt children witt do in their own independent lives.45 

Yet in recent decades, financial deregulation and the aggressive marketing of tox ic loans preyed on 

Americans' aspirations to build assets, fueling an unsustainable housing bubble that began to deflate in 

2006. The bubble and the economic crash that followed decimated the wealth of American families, 

causing more than 2.7 million homeowners to lose their single largest asset to foreclosure and tens of 

millions of others to see their homes' value drop dramatically.46 The crash hit those who had carefully 

saved and invested in their homes as well as speculators who gambled on a rising real estate market 

Overall, the nation lost more than $6.5 trillion in home equity since the housing market peaked in 2006.47 

At the same time, the value of retirement savings collapsed as the stock market plununeted, destabilizing 

hopes for a secure retirement. Not having enough money for retirement became Americans' biggest 

fi nancial worry.48 Even as middle-class Americans saw their assets diminished, the dramatic and 

long-lasting rise in unemployment and underemployment contributed to Americans' difficulty paying 

back their debts. 

The prevalence of asset poverty in America is dramatic. In September 2011, one in three American adults 

said that if they lost their job !hey wou ld only be able 10 pay their mortgage or renl payment for one 

month or less.49 A quarter of Americans report having no emergency savings at all, and would have to 

borrow or tum to family and friends jffaced with an emergency car repair, medical bill, or job 10SS.50 

Only 24 percent of Americans have six months or more emergency savings-the amount recommended 

by most financial planners. The status quo is equally grim when it comes to homeownership and 

retirement savings, the assets key to middle-class security. Nearly one in four homeowners owes more on 

16 
69 


their mortgage than their homes are currently worth,51 Only half of households have any retirement 

savings whatsoever. And even those who do have very little saved.52 

Instead of saving for the future, millions of working- and middle-class Americans are struggling just to 

service their debts. Demos has been chronicling the rapid rise in debt for nearly a decade: as wages 

stagnated and lagged behind the cost of living, Anlericans increasingly turned to borrowing - from credit 

card debt to loans against the value of their homes - to make ends meet and to try to get ahead,53 The 

deregulation of consumer lending that began in the 1980s meant Ihat many of Ihese loans included 

deceptive and predatory terms that were highly profitable for lenders but led to record bankruptcies and 

debt-to-income ratios. Americans were aggressively marketed high-interest credit cards with hidden fees, 

abusive payday loans, misleadingly-marketed adju stable rate mortgages, and high-interest subprime loans 

(even for homebuyers who could have qualified for a better rate), While some of the worst practices 

unleashed by deregulation have been curbed by regulatory enforcement, the Credit CARD Act of 2009, 

and Ihe Dodd-Frank Act of2010, Americans remain vulnerable 10 unlimited loan interest rates and 

widespread servicer and debt collector abuse,5.I 

Even today, as credit card debt has dec lined post<:rash, 40 percent of among low- and middle-income 

households carrying credit card debt still rely on their cards to pay basic living expenses becau se they do 

not have enough money in their checking or savings accounts, according to Demos' own national 

household survey.55 Credit cards are also widely used to pay medical bills and cope with spells of 

unemployment, in effect a high-interest way to make up for gaps in the pub lic safety net. 

Fortunately, smart regulation has recently made credit cards a better, fairer financial product for American 

consumers. The Credit CARD Act of 2009 has benefited millions of households in ways that directly 

affect their monthly budgets. Demos' 2012 "National Survey on Credit Card Debt of Low- and MiddleIncome Households" found that (he Credit CARD Act has empowered American s to take control of their 

finances by increasing the transparency of credit card statements and dramatically reducing excessive fees 

17 
70 


and penalties. 56 For example, the Act set new standards for clarity and disclosure in monthly billing 

statements. Credit card statements musl now include infomtation on how long il will rake to payoff the 

current balance if consumers pay only the minimum payment amount each month. Ninety percent of 

households in our survey report they have noticed the change and one-third say they are responding to the 

new infonnation included on credil card statements by paying their balances down fa ster. The CARD Act 

also offers consumers a reprieve from the assorted charges and fees that accompan ied many accounts. In 

2012, just 28 percent of households reported paying late fees- a significant decline from the one half of 

indebted households that accrued these fee s in 2008. Of those who experienced late fe es, only 29 percent 

saw interest rates go up on that card as a result, down from 53 percent in 2008, and only 14 percent 

experienced interest rate increases on their other credit cards. Finally, the Credit CARD Act virtually 

eliminated over-the-limit fees, previou sly one of the credit card induslry's most abusive and profitable 

practices. Instead of denying transactions that exceeded a consumer's credit limit, credit card conJPan ies 

used to process them and then charge consumers a fee-whether the consumers wanted to go above their 

credit limit or not. The Credit CARD Act requiresconswner authorization for exceeding limits, vinually 

eliminating these fees. 

F. Retirement System Working For Empl oyers, Bankers - Not Retirees 

As a result of the drastic shift in our retirement system from traditional defined benefit pensions to 

defmed contribution plans, Americans' retirement security is now more at risk than any time since Social 

Security was created. Only half of workers currently have any kind of retirement savings 

accumulated outside of Social Security. rI The vast majority of those who do are offered only the 

401 (k)-Iype plans that are an inadequate solution for retirement for multiple reasons. First, they are 

inordinately expensive. The fees charged by firms that manage 401(k) accounts can cost workers a quarter 

or more of their retirement savings. According to a widely-cited 2012 study by Demos, The Reliremem 

Savillgs Drain, over a lifetime, these fees can add up to more than $155,000 in losses for the average 

household. 58 Fees are levied on eUJPloyers' matChing contributions as well. In addition, 401(k)s are a poor 

18 
71 


substitute for traditional pensions because they place the burden of investment risk exclusively on 

individual workers. After working throughout their lives, older Americans relying on individual 

retirement plans could lose their savings in a market crash, invest so conservatively that they ensure 

themselves weak returns, or outlive the funds they have been able to save. Pension-style plans, 

meanwhile, ensure security by spreading these risks among many plan participants over along time 

horizon- no individual puts their entire retirement in danger. Yet in 2012, just 17% of private sector 

workers participated in a traditional pension as employers have opted for the low-cost 401(k) option 

instead.S9 

G. The Debt-for-Diploma System Burdens the Future Middle Class 

Student loan debt is another area of growing economic concern. Due to rising college costs and 

diminishing grant aid, students are increasingly reliant on interest-accruing loans to pay for college, a 

dramatic shift in norms over the course of a single generation. In 2011 , 66 percent of college seniors (at 

public or non-profit schools) graduated with debt, with borrowers carrying an average burden of S26,600 

(up from only 33% of students in 1992).60 Gr3du3tes of for-profit schools are even deeper in debt: 96 

percent graduated with debt and their average was $33,050 as of 2008.61 All told, borrowers now owe 

more than Sl trillion in student loan debt.62 And there are increasing signs that student loan borrowers are 

becoming unable to repay this debt SIB billion in student loans are more than 90 days delinquent on 

payments, and in serious risk of default; this represents an astonishing 31 percent of all student loan 

balances currently in repayment stalUs.63 Already student debt is causing young Americans (0 delay 

building the fi n3ilCi3l assets that are necessary: to middle-class security, including purch3Sing homes and 

saving for ire t.~ And the rising rate of defau lts on student debt is impairing the credit of many 

Americans as well, making it more difficult to borrow or find employment among the nearly half of 

employers who now screen credit histories during hiring.

65 

19 
72 


The consequences of student loan debt can have a profound impact on the economy as a whole. 

According lO a forthcoming Demos study, $53,000 in education debt (the average amoun! held by a 

dual-headed college educated household) leads to a net worth nearly $218,000 lower than if the household 

had not been forced to borrow to pay for their college education. Over time, the indebted household will 

end up with a net worth 17% lower than a similar non-indebted household. Over Ihe economy as a whole, 

the $1 trillion in total outstanding student loan debt will lead to $4 trillion in lifetime lost assets for 

indebted households, not even accounting for the heavy impact of defaults. 66 

III. TIlE MACRO-ECONOMIC VIEW: FOUR MEGA-TRENDS INADEQUATELY 

ADDRESSED 

A. Increasing U.S. Diversity Without a Commitment to Equity 

A major societal trend with implications for economic policy has been the rapid demographic change over 

the past four decades. After the Immigration Act of 1965 removed race-restrictive entry quotas, the share 

of immigrants from non-European countries c1irnbed.67 The white population was 83 percent in 1970 and 

76 percent in 1990; it now stands at 64 percent.68 By 2042, whites will no longer be a majority in the 

US.69 Already, 43 percent of Americans under the age of twenty-four are not white."Kl 

Ironically, the country has only grown more diverse since the end of the Civil Rights Movement. 

American society has been experiencing rapid demographic change with only intemlittent leadership 

attention to the challenges of coalescing a sense of common national purpose and identity out of a people 

with roots from every nation on the planet. While our discourse has recently embraced the idea that 

society can be color-blind, the facts belie the notion. In a 2011 Associated Press survey, 51 percent of all 

Americans expressed explicit anti-black attitudes, and 52 percent of non-Hispanic whites expressed 

anti-Hispanic attitudes?' The incidence of u1Iconscious prejudice, which can affect decision-making in 

ways that are hard to detect by the actors themselves, much less those who would enforce 

anti-discrimination laws in the courts, are even higher. For example, Harvard University's hnplicit 

20 
73 


Association Test found thal 88 percent of white people had a pro-white or anti-black implicit bias, and 

more than two-thirds of non-Arab, non-Muslim resIXlfJdents displayed implicit biases against Arab 

Muslims?2 

These implicit and explicit prejudices have real economic consequences for our di verse population. 

Approximately 3.7 million fair housing violations occur annually against African Americans, Latinos, 

Native Americans, and Asian Pacific Islanders as they seek to rent and purchase housing. Yet, l-nJD 

processed only 2, 123 complaints in 2008.73 In financial services, after decades of credit unavailability due 

to private and government redlining, the 1990s and 2000s saw communities of color experience a 

wealth-stripping phenomenon known as reverse redlining. Lenders and brokers targeted segregated 

neighborhoods with under-regulated financial products, particularly mortgages with features such as 

exploding adjustable rates, deceptive teaser rales, and balloon payments. Households of color were more 

than three times as likely as white households to end up with riskier loans.74 Federal policymakers and 

regulators declined lO protect these communities for years as foreclosures rose, even acting to pre-empt 

state anti-predatory lending efforts in the 2000S?5 The resulting loss of wealth - 66 percent average loss 

for Latino households, 53 percent for African Americans compare to just 16 percent for white 

households

76 - stands as a grave and lasting blight on Ihe future of our diverse middle class. For every 

dollar in assets that Ihe typical white family owns, the typical Latino family has just twelve cents, and Ihe 

typical African American family has only ten cents. 17 African Americans are twice as likely as whites to 

have zero or negative nel worth.

78 

Finally, numerous studies have shown that job discrimination plays a role in the higher incidence of 

unemployment among non-whites (while Ihe unemployment rate for whites is 6.7 percent, it is 13 percent 

for blacks and 9 percent for Hispanics.)19 Asjust one striking example of this literature, a 2005 Princeton 

University study revealed that employers were more likely to offer a callback to while job applicants with 

criminal records lhan to well-qualified African American job-seekers with no criminal history.3:'J 

21 
74 


B. "Free Trade" Globalization Trades Away Mlddle·Class Jobs 

The United States has lost millions of middle-class jobs as a result of the particularly labor-competitive 

form of globalized (fade that policymakers have aggressively adopted in recent decades. Our trade 

policies have been written and enforced in ways that advantage multi-national firms seeking lower-cost 

labor, directly resuiling in fewer and lower-paying jobs for the American middle class. Increasingly, 

white-collar jobs are also moving overseas as China, India, and other nations field more educated workers 

who can do the jobs now done by U.S. scientists, accoumants, lawyers, and doctors. As a historic 

chanlpion of a more open global economy, the United States has often failed to take a hard look at how 

this system puts U.S. living standards at risk and develop policies to balance the prerogatives of multinational corporations and the American middle class. Worse, the US. has often done little as other 

countries, like China and Japan, have played by a different set of !Jading rules that put the U.S. at a 

disadvantage. And we have repeatedly been silent in the face of abuses of worker rights, even when these 

abuses are perpetrated by close trading panners who are bound by Free Trade Agreements to uphold basic 

labor standards. 

Over the past few decades, Increased trade with low-wage countries has been responsible for fully a third 

of the depression in wages of non-bachelors degree holders relative to degree-holders since 1979; !Jacking 

just since 1995 (one year after the North American Free Trade Agreement crune into force), low-wage 

country trade accounts for over 90 percent of the wage depression.sl 

22 
75 


MEDIAN EARNINGS , AGES 25-34 , HIGH SCHOOL GRADUATES 

$45,000 

$41,229 

$40 ,000 

$35,000 

$31,000 

$30 ,000 $26,500 $26,620 

$24,000 

525 ,000 

S20 ,000 

$15 ,000 

0 M ~ ~ N ~ ~ " ~ ~ 0 

~ ~ ~ ~ ~ ~ ~ 0 0 

~ ~ ~ ~ ~ ~ ~ 0 0 0 0 N N N N 

" " - 0. "'00.0'1 

The downward pressure 00 wages affects not JUSt workers who are directly competing with foreign 

production workers. When multi-national firms layoff American manufacturing workers in favor of less 

expensive employees in our trading partner countries, these laid-off workers compete for lower-paying 

jobs in non-offshorable sectors, such as landscaping or food service.!:! Thus the effect of our trade policy 

ripples throughout the working and middle class, beyond JUSt those directly affected by plant closings. 

The broader economic dynamic of high corporate profits amidst weak job growth and declining wages for 

most Americans is in large part a result of our global trade policies. The North American Free Trade 

Agreement turned a slight trade surplus with Mexico into the current ahnost $1 00 billion deficit, which 

has COSt nearly 682,900 jobs.S3 The permanent oormaliUltion of trade relations with China has COSt over 2 

million American manufacturing jobs between 200 I and 2011.8< 

23 
76 


C. The Financialization of the Economy 

The deregulatory movement that transformed consumer finance also revolutionized commercial and 

investment banking and trading in ways that have dramatically increased finance's share of the U.S. 

economy, from 3.8 percent to 8.2 percent of GDP.85 This growth of the financial sector was not because 

of increased demand for financial services, which only grew by 4 percent in the last decade.86 Financial 

sector profits have also increased as a share of total corporate profits, with the non-financial sector 

transferring increasing income to the financial sector. Research from New York University's Stem School 

of Business shows that the cost of financial intermediation - the critical function of transferring capital 

from investors to productive uses in the economy - has actually increased since deregulation. The reason 

appears to be an enormous increase in trading. 

······ ·· ···· I\ i\. ·· ······ ······ ~ 

.VvL .. V ..~ ....... ~ ............. . 

YEAR YEAR 

.... ~ " ......... __ _lJ. o{~ __ ... _ 

O. mO •. O'1l 

The relative growth of the financial sector is not necessarily a problem if the services provided by the 

sector provide commensurate value to the overall economy. With the cost of intermediation rising despite 

technological advances - and with economic performance worsening, particularly as measured by the 

24 
77 


employment recovery time (XIst-recessions - it becoming apparent that value is being simply reallocated 

to the beneficial owners of financial fmIlS. This drains resources that could be pUi to uses that would 

increase the productivity of the overall economy and create jobs and wealth. Demos Senior Fellow 

Wallace Turbeville has estnnated that the excessive wealth transfer to the financial sector is in the range 

of $635 billion per year.1fI 

In fact, the growing financialization of the U.S. economy and its impact on publicly traded corporations 

undermines the middle class in a range of ways. A focus on "shareholder value" has trumped all other 

goals for the modem corporation since the 1980s - a shift that Wall Street helped usher in through a 

relentless search for profits that included leveraged buy-outs, mergers and acquisitions, and private equity 

deals, as well as a more aggressive quest for short-tenn trading gains. This narrow focus on the bottom 

line has undennined American workers and the middle class by justifying any cost-cutting measures that 

can boost quarterly earnings, including layoffs, foreign outsourcing, eliminating benefits, and defeating 

union drives. Nearly all the forces typically blamed for rising inequaliry- globalization, new 

technologies, declining unionization - have had a more devastating impact on U.S. living standards 

thanks to Wall Street's imperative to put stock price above all else. 

D. Increased Employer Resistance to Empl oyee Collective Bargaining 

Organized labor has traditionally played a critical role in ensuring that middle-class working people 

receive a larger share of the economy's gains. Unions bargain collectively for better wages and benefits 

for their members. But unions also raise compensation for workers they do not represent: a recent study 

by Bruce Western and Jake Rosenfeld finds that unions substantially boost compensation for non-union 

employees in addition to their own members by influencing non-union employers to raise wages in order 

to avoid unionization; by promoting nonns of fair pay, and by lobbying for public (XIlicies that raise 

wages. 88 In short, high unionization boosts the share of economic growth going to working people rather 

than to cOf}Xlfate profits or the very highest earners. 

25 
78 


AS UNION MEMBERSHIP RATES DECREASE , 

MIDDLE CLASS INCOMES SHRINK 

... 

.. 

~ 

'" 

~ 

% 

~ 

... '" 

II 

t 

... 

t 

% 

o 

% 

:> 

30 

25 

20 

15 

UN IO N MEMBERSHIP RATE 

10 

5 

55 

50 

45 

40 

35 

30 

o I I I I I I I I I I I I I I I I I I I I I 25 

... 

t 

o 

u 

% 

... 

.. 

~ 

" ... 

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... 

o 

s....r. o,Jc'aaI "" .. ., o._w ~ luI, 'W'.luu-lN.", IoaAbL ... s....a _ W~ laM ..... larry r Hlad, 

t:tm.IA .... ~ .... d 11uG V_, .. ·tll ... '"JU. ... Dmdrp..,SUlr:W_~lFlAollnWw.V.IU.No.7 ... I, 001 "WeD. 

~Sb,.rAWlCUf ..cecM .. fr .. lJUtdS .. laCco...kI..... Ikmot 

However, the percentage of Americans belonging to unions has declined steadily, falling by 44 percent 

between 1983 and 2012, so that today, just 6.6 percent of private sector workers belong to unions. 

Western and Rosenfeld estimate that the decline of unionization has contributed as much as third to 

the growth of income inequality among working men since 1973.89 

One reasons for union decline is growth of employer opposition to unionization and the weakening of 

laws intended to protect employees' right to organize. Today, the system meant to defend the rights of 

employees to form unions no longer functions. Weak and slow-moving enforcement of labor rights allows 

employers to routinely violate the law, threatening and harassing employees who attempt to organize. An 

analysis of union elections from 1999 to 2003 revealed that when workers attempted to organize a union, 

96 percent of employers mounted a campaign against their effort.9() Three quarters of employers hired 

outside anti-union consultants. So while workers might wish to join unions, they often fail to persist in the 

effort after an intimidating one-on-one anti-union meeting with their direct supervisor once a week or 

26 
79 


IllIt Itddng ~ ID. union d.t<tioD (I U<tic~ usod .. (6)fttt1l of<ri"'izi,,!! can"(lIigm), attr 

11m boss IlnaIms 10 oo..oo.lId1e wortp:a if worlmdocide 10 -.. (57 J"f<mt of a plizi,,!! 

~gns~ a after ItIose oo-WOIteri _00 (I'll!( qenI~ ~ die unionat ~Rd (l4 pe«%IM of 

orpli~can"(lIiPJ)· 

......... 0"..;0;.. ........ 0.,....,. ..... ""', 

- ." -

- '" -----

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_ .... ... _--.. 

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~ .... -...... -.-.-- ~ .. --

. --

'" I _ --.- ... _.-

_.-

IV. THt DECLll'IT CI' mE MlODLULASS DEMOCRACY 

," 

_ 

I ... _- ....... __ ... 

We havefe'!ewtd die dru i~"8 dl!I d:e nIddedmi. ~i"l! ¥<I (hoi: U(II'ard nrtility if 

d.uo"" f{l llllD)' ~ Mtanwlil .. e'oidmct:lbolnk th.tIdIe u.s. p<iji<aI sysIml is incrusin).iy 

darimttd by ",t.altby inImsU, ¥<I suoog. 1l-!X"'Isan D13ja\ti .. of die ]iliic bd.iew tht d!cl. i. SIrltd 

" 
80 


private interests have come to wield more influence over public policy, with ever larger sums of money 

shaping elections and the poJicymaking process, our political system has become less responsive to those 

looking for a shot to improve their lives and move upward. This is in part because wealthy interests are 

keenly focused on concerns not shared by the rest of the American public and often oppose policies that 

would foster upward mobility among low-income citizens, such as raising the minimum wage. 

A. Different Incomes, Different Priorities 

Significant differences between the wealthy and the general public exist in such areas as tax and budget, 

rrade and globalization, regulation of business, labor, the social safety net, and the overall role of 

government. the general public is more open than the wealthy to a variety of policies designed to reduce 

inequality and strengthen economic opportunity, including: raising the minimwn wage, increasing the 

Earned Income Tax Credit, providing generous unemployment benefits, and directly creating jobs. For 

exanlple, as the table below reports, only 40% of the wealthy think the minimwn wage should be high 

enough to prevent full-time workers from being in poverty, while 78% of the general public holds this 

view. Affluent voters are also less supportive of labor unions and less likely to support laws that make it 

easier for workers to join unions-even as research shows that unions are crucial to enabling people to 

work their way into the middle class. Governors elected with strong support from affluem voters and 

business groups have prioritized tax cuts over funding for primary and secondary public education.

92 

28 
81 


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82 


VOTER TURNOUT BY INCOME, lOllS U.s. PRESIOEIflI.t.L ELECTION 

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83 


For example, despite the important role a strong minimum wage plays in economic mobility, Congress 

has allowed the wage to decline steadily in real terms over the past four decades. (Meanwhile, it has 

repeatedly lowered capital gains tax: rates to benefit the wealthy, despite majority opposition to 

preferential treatmem of wealth income over work income).% Even with the series ofminimwn wage 

increases, adjusting for inflation shows that the real value of the federal minimum wage fe ll roughly 30 

percent since 1968. If the minimwn wage increased at the same rate as inflation, it would be equal to 

$10.69 per hour, far above the current $7.25.'fI 

This slide in the minimum wage should be no surprise when one takes a close look at the data on 

lobbying expenditures. The data suggests thaI low-wage workers, whoconSLitule as much as a fifth of the 

U.S. labor force, have very few paid advocates in the corridors of Washington. Labor unions often speak 

up for these Americans, but otherwise, lobbying by groups that explicitly advocate for low-wage workers 

or non-elderly low-income people is so small that it doesn't even merit its own category in records 

compiled by the Center for Responsive Politics. This lobbying imbalance exacerbates the problem of 

elected officials being accountable to wealthy can1(Xlign contributors by ensuring thaI once in office, these 

offi cials are exposed to a constant flow of information supporting the donor class' views and positions. 

The most important study in this area is by the political scientist Martin Gilens, AjJ1uence and Influence: 

Economic Inequality alZd Political Power ilZ America. By comparing the policy preferences of different 

income groups with actual policy outcomes, he was able to detennine how much influence different 

groups have had over policy. GUens writes of his fmdings: "The Americall gOl'el1lmeflt does respond to 

the public's preferences, bwthat responsil'eness is strongly tilled IOward the most affluent citizens. 

Indeed, under most circumstances, tlie preferellces oftlie vast majority of Americalls appear to liave 

esselltially 110 impact Oil which policies the govemmellt does ordoesll't adopt."Gilens shows that, in 

many cases, public policy outcomes would have been quite different if Congress and the President had 

been equally responsive to all income groups. 

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84 


V, Policy Recommendations 

A, Strengthen Pathways to the Middle Class 

Building a stronger middle class that fully refl ects America's diversity will require policies that: 

IIIl'est in human capital and education. Investing in education and human development, ensuring 

that future generations are well cared for and well educated, and that working people have the 

time they need to be caregivers to the people they love is a key starting point for moving mi llions 

of Americans into the middle class. For example, employees who need flexibility in their work 

lives to care for a child or other family member often face economic hardship. A system of family 

leave insurance - like the successful model in California - would help in sure that the birth of a 

child no longer leads to poverty. Investing in affordable, high-quality child care and early 

education would reduce educational gaps and set the groundwork for success long after school. 

Finally, the nation's financial aid system should be revamped to ensure that every 

college-qualified studem has access 10 higher education without taking on ruinous debt. 

Illcrease employees' power ill the workplace. Since the 1970s, a growing share of share of 

national income has gone to corporate profits while the proportion going to labor compensation 

has decreased. This shift has greatly accelerated in the last decade. To reverse the trend, 

employees need more power in the workplace. The bottom of the labor market should be 

bolstered by raising the minimum wage, guaranteeing paid sick days to working people, and 

ensuring that worker protections are effective and apply to everyone. At the same time, weakened 

labor laws should be reconstituted so that Americans can exercise their right to organize unions 

and negotiate for pay and benefits that will allow them to enter the middle class. Finally, the U.S. 

32 
85 


should create a short-term public jobs program and long-teml public investment plan to promote 

full employment. 

Use tax policy to strengthen and expand the middle class. Too often, the nation's tax policy 

bolsters the alrC.1dy wealthy rather than supporting Americans trying to work their way inro the 

middle class. A more progressive tax system could increase economic mObility and reduce 

inequality. The Earned Income Tax Credit and the Child Tax Credit, which benefit low-income 

workers and their families, should be expanded. To ensure that the home mortgage laX credit 

helps middle-class fam.ilies rather than subsidizing the super-wealthy, its value should be capped. 

Meanwhile, taxes on capital gains and dividends - income which disproportionate ly flows to the 

wealthiest Americans - should be increased, and corporate tax loopholes should be eliminated. 

To reduce the transfer of tremendous wealth from one generation to the next, estate taxes should 

be increased. 

Enable Americans 10 build assets. Owning assets - from a retirement account, to a home, to an 

emergency savings fund - is crucial to middle-class security. Yet American families have lost 

trillions of dollars in home equity as a result of the housing crash, and one in three say that if they 

lost their jobs, lhey could not make housing payments for more than a month. To help distressed 

homeowners, a new public agency should be established to acquire and refinance under-water 

mortgages. To increase retirement security, Social Security should be safeguarded and 

supplemented with a system of voluntary annuitized pensions that guarantee a minimum rate of 

return. And to ensure that the predatory lending that drains pocketbooks is halted, federal usury 

limits should be established for all fOrolS of lending and bankruptcy laws shou ld be rewritten ro 

provide greater relief to student borrowers and homeowners. 

33 
86 


B. Limit the Economic Policy-Distorting Influence of Money in Politics 

To achieve and preserve these refoons, we must also limit me influence of money in politics. One critical 

way to reduce me disproportionate innuence of the wealthy on public policy is to create a system for 

financing election can-.paigns that lives up to the idea of one-person, one-vOle by leveling me playing 

field between rich and poor and giving every American a strong voice. Such a system requires several key 

refonns: 

Amend the U.S. COllstitulion lO restore the ability a/the people to enact common-sense, 

comelll-neutral restrictions OIl political contributions and spending to promote political equality. 

Congress should propose an amendment or package of amendments to the U.s. Constitution to 

clarify that me First Amendment was never intended as a tool for use by corporations and the 

wealmy to dominate the political arena. 

EnacI strictlimi(S on the amount that wealthy individuals and interests can contribute and spend 

011 U.S. politics. Millionaires, billionaires, and large corporations have no inherent right to drown 

out me voices of the rest of the population. After amending me Constitution or educating the next 

generation of Justices, Congre ss and states should sharply limil contributions and spending to 

level me playing field for all Americans. 

Match small contributions with public resources to empower small donors and help grassroots 

candidates run viable campaigns. Low-dollar contributions fronl constituents should be matched 

with public funds, and candidates who demonstrate their ability to mobilize support in meir 

districts should receive a public grant to kick start their catll{Xligns. These measures would 

amplify the voices of non-wealmy citizens, encourage average Americans to participate in 

34 
87 


campaigns, change candidate incentives, and enable aspiring public servants without access to 

big-money networks to run viable campaigns for federal office. 

Encourage small political contn'butiolls by providing rouchers or tax credits. Encouraging 

millions of average-eaming American s to make small contributions can help counterbalance the 

influence of the wealthy few. Several states provide refunds or laX credits for small political 

contributions, and the federal tax code did the same between 1972 and 1986. Past experience 

suggests that a well designed program can motivate more small donors to participate. An ideal 

program would provide vouchers to citizens up front, elinlinating disJXlsable income as a factor 

in political giving. 

Require greater transparency around political spending. Congress should close existing 

loopholes in disclosure laws so thal all money spent to influence US. elections (above a 

reasonable threshold) can be traced back (0 its original source. Allowing citizens to "follow the 

money" would help voters make infonned choices and prevent wealthy interests from sponsoring 

nasty or misleading adds while insulated from public accountability. 

Strengthen rules govemillg lobbying to reduce the injluence of well-heeled special interests. 

Congress should strengthen disclosure around lobbying and implement stronger revolving door 

limits that prevent fonner elected officials from approaching fonner colleagues for several years. 

C. Address Class Gaps In Vollng by Expanding the Freedom to Vote 

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88 


A legitimate government "of the people, by the people, and for the people" must vigorously promote 

and protect the freedom to vote so that all eligible persons can panicipare in self-government. But 

today, too many bureaucratic barriers still block the ability of milliolls of eligible persons to register 

and vote, and too many politicians are actively seeking to shrink the electorate with unnecessary and 

discriminafOry restrictions on political participation. Reversing this trend emails: 

Removing Barriers to Registration and Voting: Voter registration is a particularly important 

target for refonn, given that almost one of four eligible Americans was not registered to vote in 

the period leading up fO the 201 2 elections. In particular, the following should be adopted: 

Same-Day Registratioll: bnplementing Same Day Voter Registralion, which allows eligible 

individuals to register and vote at the same time, is a proven method to increase participation 

and turnout among eligible voters.98 States with Same Day Registration record consistently 

higher voter mmout and participation than slates without il.99 

Expanding Agency Registration and Automate the Registration Process: States should 

modernize the voter registration system to remove administrative burdens and costs by taking 

the initiative to place eligible voters on the registration rolls rather than leaving the burden on 

individual citizens to navigate the voter registration process. 

Making Registratioll Permanellt and Portable: Almost 36.5 million US residents moved 

between 2011 and 2012.

100 Low-income individuals are twice as likely to move as those 

above the poverty line. Voter registration should become portable and pennanent for persons 

who move within a state, by automatic updates to registration records as citizens change their 

address. 

36 
89 


Protections Against intimidation and Wrongful Challenges States should put measures in 

place to protect voters from intimidation tactics, including clear rules and procedures to 

protect voters from improper removal from voting rolls, intimidating behavior at polls, and 

deceptive practices mal discourage voring. 

1 "Living Belowthe Line: Economic Insecurity and America's Families,H Wider Opportunities for Women (2011), 

http://www.wowonline.org!documentsIWOWUSBESTLivingBelowtheLine2011.pdf. 

2 Annette Bernhardt, "The Good Jobs Deficit: A Ooser look at Recent Job loss and Job Growth Trends Using 

Occupational Data, ~ National Employment law Project (July 2011), http://www.nelp.org/page!-

IFinal%200ccupations%20report%207-2S-11.pdf?nocdn=1. 

1 "Trends in the Oistribution of Household Income Between 1979 and 2007," Congressional Budget Office (October 

2011), http://www .cbo.gov!sites/defa uit/files!cbofiles/attachments/1O-2S-Householdlncome.pdf. 

4 See (as examples): Julia B. Isaacs, "Economic Mobility of Families Across Generations," Brookings (2007), 

http://www.economicmobility.orglassetsfpdfsfEMP Famil iesAcrossGenerations Chapterl.pdf and Markus Jantti 

et ai, "American Exceptionalism In A New Light: A Comparison of Intergenerational Earnings Mobility in 

the Nordic Countries, the United Kingdom, and the United States, ~ Institute for the Study of Labor (January 2006). 

http://ftp.iza.org/dp1938.pdf. 

S "The State of Young America: Economic Barriers to the American Dream," Demos (October 2011), 

http://www.Demos.org/sites/default/files/publ icationslSOYA TheDatabook 2.pdf. 

6 Alan Krueger, "The Apple Falls Close to the Tree, Even in the Land Of Opponunity," New York Times, November 

14, 2002, p. 02. 

7 "State of Working America," Economic Policy Institute (EPI), http://stateofworkingamerica.org/. 

sid. 

g "State of Young America: Jobs and the Economy," Demos (October 2011), 

http://www.demos.org/sitesfdefault/files/publications/SOYA JobsandtheEconomy O.pdf. 

10 Heidi Shierholz, "Wages of Young College Graduates Have Failed to Grow Over the Last De<:ade, Economic Policy 

Institute (EPI) (April 2013), http://www .epLorg/publication/snapshot -wages-youns-college-graduates-failedgrow/. 

II See "Interactive Data," United State Bureau of Economic Analysis (BEA), 

http://www.bea.gov/iTable/index nipa.cfm· also, Steven Greenhouse, "Our Economic Pickle,~ The New York Times 

(Janua ry 2013), http://www.nytimes.comI2013/01/13/sunday-reviewla mericas·productivity-climbs-but -wagesstagnate.htmL 

12 Andrew SUm, Ishwar Khatiwada and Joseph Mclaughlin, "The 'Jobless and Wageless' Re<:overy from the Great 

Re<:ession of 2007- 2009," Sheila Pa lma Center for labor Market Studies, Nonheastern University (May 2011), 

http://www.employmentpolicy.org/sites!www.employmentpolicy.orglfiles/field-contentfile/pdf/Mike%20lillichfRevised%20Coroorate%20Report%20Mav%2027th.pdf. 

13 Emmanuel Saez, "Striking it Richer:The Evolution of Top Incomes in the United States (Updated with 2011 

Estimates), H January 2013, http://elsa.berkeley.eduhaez!saez-UStopincomes-2011.pdf. 

14 "Employer Health Benefits: 2012 Annual Survey," The Kaiser Family Foundation and Health Research and 

Educational Trust (Sept 2012), http://kaiserfamilyfoundation.files.wordpress.comI2013/04/834S.pdf. 

15 "Parents and the High Cost of Child Care: 2012 ReporV Child Care Aware of America (2012), 

http://www.naccrra.org/sites/default/files/default site pagesl2012!cost reoort 2012 final 081012 O.pdf. 

IS Id. 

37 
90 


!7 Janet Viveiros and Maya Brennan, "Housing landscape 2013, ~ Center for Housing Policy (May 2013), 

http:((www.nhc.org/media/filesllandscape2013.pdf. 

18 Author's calculations based on U.S. Census Historical Income Tables P16 and P17. 

19 See The College Board, Published Tuition and Fees Relative to 1982-1983 by Sector, UFigure S: Inflation-Adjusted 

Published Tuition and Fees Relative to 1982-83, 1982-83 to 212-13 (1982-83 = 100},U 

http://trends.collegeboard.org/college-pricing/figures-tabl esfpublished-tuition-and-fees-relative-1982-83-sector. 

2tI Claudia Goldin and lawrence F. Katz, The Race Between Education and Technology, Belknap Press, 2008. 

21 John Quintero, "The Great Cost Shift: How Higher Education Cuts Undermine the Middle Class, Demos (March 

2012), http://www.demos.org/sites/defauit/fi les/publicat ionslIheGreatCostShift Demos.pdf. 

22 See Advisory Committee on Student Financial Assistance, "The Rising Price of Inequality: How inadequate Grant 

Aid limits College Access and Persistence," June 2010, 

http://www2.ed.!!ov/aboutlbdscomm/list/acsfalrpiiunea.pdf· also, Public Agenda, "With Their Whole lives Ahead 

of Them," December 2009, http://www.publicagenda.org/theirwholelivesaheadofthem. 

23 See "The State of Young America: Economic Barriers to the American Dream," Demos and Young Invincibles 

(November 20ll), http://www.demos.org/sites/defaultlfiles/publications/SOYA TheDatabook 2.pdf· also, Sandy 

Baum and Kathleen Payea, "Trends in Student Aid", ColiegeBoard (201O), 

http://trends.coUegeboard.org/downloads/Student Aid 2010.pdf. 

24 Viany Orozco and Nancy K. Cauthen, "Work less, Study More and Succeed," Demos (2009), 

http://www.oemos.org/publication/work-less-study-more-succeed-howfinancial-supports-can-improvepostseconda ry-success. 

2S See Uliving Below the line: Economic Insecurity and America's Families," Wider Opportunities for Women 

(20ll). http://www.wowonline.org/documentsiWOWUSBESTlivingBeiowtheline2011.pdf· also, authors' 

calculations based on Bureau of labor Statistics data. 

26 Bureau of labor Statistics, "Table 6. The 30 Occupations with the largest Projected Employment Growth, 2010-

2020, ~ United States Department of Labor (February 20l2), hltp:l!www.bls.gov/news.release/ecopro.t06.htm. 

27 Catherine Ruetschlin. "Retail's Hidden Potential: How Raising Wages Would Benefit Workers, the Industry, and 

the Overall Economy, Demos (Nov 2012), 

http://www.demos.org/sites/default/files/publications/RetailsHiddenPotential.pdf. 

28 Amy Traub and Robert Hiltonsmith: UndelWriting Bad Jobs: HowOurTax Dollars are Funding Low Wage Work 

and Fueling Inequality, Demos (May 2013), 

http:((www.demos.org/sites/default/files/publications/UnderwritingBadJobs-Demos.pdf. 

29 See UCurrent and Real Values of the Federal Minimum Wage, 1960-2012," Economic Policy Institute (EPI), 

http:((www.epi.org/filesI2012/data-swa/wage-data/Minimum%20wage.xlsx. 

1O Anr'lette Bernhardt et al., "Broken laws, Unprotected Workers: Violations of Employment and labor laws in 

America's Cities," National Employment law Project (NElP) (2009), http://www.nelp.orglpagel-

/brokenl aws/BrokenlawsReport2009.pdf?nocdn=1. 

31 "uHome is Where the Work Is: Inside New York's Domestic Work Industry,~ Domestic Workers United and 

DataCenter (July 2oo6). http://www.datacenter.orglreportsJhomeiswheretheworkis.pdf. 

32 William Kandel, uA Profile of Hired Farmworkers: A 2008 Update, ~ United States Department of Agriculture (July 

2008), http://www.ers.usda.gov/Publications/ERR60/ERR60.pdf. 

33 Bureau of labor Statistics, "Economic News Release: Table 4. Families with Own Children: Employment Status of 

Parents by Age of Youngest Child and Family Type, 2011-2012 Annual Averages, ~ United States Department of 

labor (last modified April 2013), http:{(www.bls.gov/news.releaselfamee.t04.htm. 

14 "caregiving in the U.S.: Executive Summary,n Nationa l Alliance for Caregiving (November 2009), 

http:((www.caresiving.orgfpdf/researchfCaregivingUSAIIAgesExecSum.pdf. 

3, "The Metlife Study of caregiving Costs to Working caregivers: Double Jeopardy for Baby Boomers Caring for 

their Parents," Metlife Mature Market Institute (June 20ll), available at http://wlWW.caregiving.org/wpcontent/uploadsl2011/06/mmi-caregiving-costs-working-caregivers.pdf. 

l6 Bureau of labor Statistics, "Table 6. Selected Paid leave Benefits: Access, National Compensation Survey, March 

2012, ~ United States Department of labor, http://www.bls.gov/rtews.releaselebs2.t06.htm. 

38 
91 


17 Nancy K. Cauthen, "Scheduling Hourly Workers: How Last-Minute, Just-In-Time Scheduling Practices Are Bad for 

Workers, Families, and Businesses," Demos (March 2011). http://www.Demos.or!!/Publication/schedurng-hourlyworkers-how-Iast -minute-just -time-scheduling-practices-are-bad-workers. 

18 "Failing Its Families, W Human Rights Watch (February 2011), 

http://www.hrw.orpJen!reports!2011/02/23/failing-its-families. 

19 "Low-wage workers" refers to the bottom quarter of income earners. See: Bureau of Labor Statistics, Employee 

Benefits Survey, Table 32-"Leave Benefits: Access, Civilian Workers, National Compensation Survey, March 2012," 

http://www.bls.gov/ncs/ebs/benefitsI2012/ebbI0050.pdf. 

4{1 Tom W. Smith and Jibum Kim, "'Paid Sick Days: Attitudes and Experiences," National Opinion Research Center at 

the University of Chicago (June 2010), 

http://news.uchicago.edu/statidnewsengi ne/pdfll00621.paid .sick.leave .pdf. 

4 1 "The Family and Medical Leave Act Regulations: A Report on the Department of Labor's Request for Information 

2007 Update," U.S. Department of labor (June 2007), 

http://www.dol.gov/whd/FMLA2007FederaIRegisterNotice/07-3102.pdf. 

42 Nicole Casta, "Highlights of the 2000 U.S. Department of labor Report: Balancing the Needs of Families and 

Employers: Family and Medical leave Surveys.w National Partnership for Women and Families (2000), 

http://www.nationalpartnership.org/site/D06erverl2000DouaborReportHighlig%OA%09hts.pdf?dOclD=954. 

41 Jodi Grant et aI., "Expecting Better: A State-By-State Analysis of Parental Leave Programs (Second Edition)," 

National Partnership for Women and Families (May 2012), 

http://www.nationalpartnership.orglsite/006erver IP arentalleaveReport MayOS.pdf?dodD=1052. 

44 Note that many of these countries provide paid leave only to new mothers. 66 countries also give fathers the 

right to paid time off. See: Jody Heymann, Alison Earle and Jeffrey Hayes, "The Work, Family, and Equity Index: 

How Does the United States Measure Up?" The Institute for Health and Social Policy at McGil l University (2007), 

http://www.mcgill.ca/files/lhspIWFEI2007.pdf· also, "Raising the Global Floor: Adult Labour," McGill Institute for 

Health and Social Policy (2012), http://raising1heglobalfloor.org/index.pho. 

4~ Ray Boshara (Ed.1, "Building Assets: A Report on the Asset- Development and IDA Field," Corporation for 

Enterprise Development (December 2001), available at 

http://www.ca shbuffa lo.org/sitepages/downloa ds/research/CFED BulidingAssets.pdf. 

46 Debbie Gruenstein Bocian, Wei Li, Carolina Reid and Roberto G. Quercia, "lost Ground 2011: Disparities in 

Mortgage Lending and Foreclosures," Center for Responsible Lending (November 2011), 

http://www.responsiblelending.org/mortgage-lend·nglresearch-analysis/Lost -Ground-2011. pdf. 

47 "Flow of Funds Accounts of the United States: Rows and Outstandings Third Quarter 2011," Board of Governors 

of the Federal Reserve System Online, Accessed March 4,2012. 

http://www.federalreserve.gov/releaseslzllcurrentlz1.pdf page113.Based on the decline from $22.7 trillion in 

household real estate assets at the peak in 2006 to $16.2 trillion in the second quarter of 2011. 

-48 Elizabeth Mendes, "Lack of Retirement Funds Is Americans' Biggest Financial Worry," Gallup WellBeing, June 15, 

2011, Accessed online March 4, 2012, http://www.gallup.com/ooIl/148058/Iack-retirement-funds-americansbiggest -fina ncial-worrv .aspx. 

49 "Most Americans are concerned with the current state of their personal finances," KRC Research (September 

2011). 

http://www.financialplanningdavs.org/userimages/toolkit/KRC Managing Personal Finances Survey Key Findin 

gs.pdf. 

so "As Economy Reels, Millions Have No Savings," Bankrate.com Smart Spending Page (June 2011), Accessed online 

March 4, 2012, http://www.bankrate.comlflnancelconsumer-index/june-20 ll-financial-security-pol I.aspx. 

SI Svenja Gudell, "Millions Remain Trapped by Effective Negative Equity in Q1, Even IfThey're Not Underwater," 

Zillow Rea l Estate Research (May 2013), http://www.zlltowblog.comlresearchI2013/0SI221miliions-remaintrapoed-bv-effective-negative-eguity-in-al-even-if -theyre-not -underwater I. 

S2 See Board of Governors of the Federal Reserve System u2010 Survey of Consumer Finances" Data, (last updated 

April 2013), http:Uv.ww.federalreserve-sov/econresdata/scf/scf 2010.htm and 

http://www.federalreserve.gov/econresdata/scf/scf2010survev.htm. 

39 
92 


51 Amy Traub and Catherine Ruetschlin, "The Plastic Safety Net: Findings from the 2012 National Survey on Credit 

Card Debt of Low- and Middle-Income Households,'" Demos (2012). 

http://www.demos.org/sites/defaultlfiles/publications/Plast icSa fetyNet-Demos.pdf. 

Sol For examples of abusive practices, see "Servicers Continue to Wrongfully Initiate Foreclosures: All Types of loans 

Affe<:ted," National Association of Consumer Advocates (NACA) (February 2012), 

http://www.naca.net/sites/default/files/NACA%20NCLC%20NAC8A%2OWrongful%20Foreciosure%20Survev%20Re 

sultso/020February%2022%202012.pdf· also, "Debt De<:eption: How Debt Buyers Abuse the Legal System to Prey on 

lower-Income New Yorkers," Neighborhood Economic Develop Advocacy Project (NEDAP) (May 2010), 

http://www.nedap.org/pressroom/documents/DEBT DEGPTION FINAL WEB.pdf. State usury laws setting 

maximum interest rates were rendered unenforceable against out-of-state lenders by the Supreme Court case 

Marquette National Bonk of Minneapolis v. First of Omoho Service Corp. {439 u.s. 399 (l978)). The only national 

usury limit is the 36 percent cap for loans to servicemembers and their families created in the Talent-Nelson 

Amendment of 2007. 

5S Amy Traub and Catherine Ruetschlin, "The Plastic Safety Net: Findings from the 2012 National Survey on Credit 

Card Debt of Low- and Middle-Income Households," Demos (May 2012). 

http :lJwww.demos.org/sites/default/files/publications/Plast icSa fetyNet -Demos.pdf. 

S6 ld. 

57 Bureau of Labor Statistics, Employee Benefits Survey, "Table 2. Retirement Benefits: Access, Participation, and 

Take-up Rates, Private Industry Workers, National Compensation Survey, March 2012, ~ United States Department 

of labor, http://www .bls.Eov/ncs/ebs/benefitsI20121ownership/privatel1able02a.htm. 

~ "Robert Hiltonsmith, "The Retirement Savings Drain: The Hidden and Excessive Costs of 401(k)s," Demos (April 

2012), http://www.demos.orE/sites/defauit/files/publicationslIheRetirementSavingsDrain-Demos O.pdf. 

59 "Retirement Costs for Defined benefit Plans Higher Than for Defined Contribution Plans," United States Bureau 

of labor Statistics: Beyond the Numbers (December 2012), http://www.bls.gov/opublbtn/volumel/pdflretirement-costs-for-defined-benefit-olans-higher-than-for-defined-contribution-plans.pdf. 

60 "Student Debt and the Class of 2011," The Project on Student Debt (October 2012), 

http://projectonstudentdebt.orglfiles/pub/classof2011.pdf. 

61 "QuiCK Facts About Student Debt," The Project on Student Debt (January 2010), 

http://projectonstudentdebt.orglfiles/File/Debt Facts and Sources.pdf. 

61 Donghoon lee, "Household Debt and Credit: Student Debt," Federal Reserve Bank of New York (February 2013), 

http://www.newvorkfed.org/newsevents/mediaadvisoryI2013lLee022813.pdf . 

61 "Quarterly Report on Household Debt and Credit," Federal Reserve Bank of New York (February 2013), 

http://www.newyorkfed.org/research/national economY/householdcred't/Di strictReport Q42012.pdf. 

64 "Student loan Affordability: AnalySiS of Public Input on Impact and Solutions," Consumer Financial Protection 

Bureau (May 2013), http://fi1es.consumerfinance.gov/fI20130S cfpb rfi-report student-1oans.oc!f. 

55 Background Checking The Use of Credit Background Checks in Hiring Decisions," Society for Human Resource 

Management (SHRM) (July 2012), 

http://www.shrm.org/Research/SurveyFindi ngsl Articles/Pages/Credit BackgroundChecks.aspx. 

66 Tamara Draut and Robert Hiltonsmith, "Good Debt? The True Cost of Student loans" (working title), Demos 

(June 2013), forthcoming. 

67 1n 1960, there were fewer than 1 million foreign born from latin America, but by 2010, there were 21.2 million. 

For the foreign born from Asia, there were fewer than one-half million in 1960, but by 2010 there were 11.3 

million. By comparison, the foreign-born population from Europe declined from 7.3 million in 1960 to S.1 million in 

1980, then ranged between 4 and S million from 1990 to 2010." See Elizabeth M. Grieco et aI., "The Size, Place of 

Birth, and Geographic Distribution of the Foreign-Born Population in the United States: 1960 to 2010, United 

States Census Bureau (October 2012), http://www.census.gOV/OOPulationlfOreign/fileSIWOrkingpaper96.Pdf. 

68 seeElizabethM.Grieco. "Race and Hispanic Origin of the Foreign-Born Population in the United States: 2007,~ 

United States Census Bureau (January 2010), http://www.census.gov/prodI2010pubs/acs-l1.pdf·also,lindsay 

Hixson, Bradford B. Hepler, and Myoung Ouk Kim, '1he White Population: 2010," United States Census Bureau 

(September 2011), http://www.census.gov/prod/cen201O/briefs!c2010br{)S.pdf. 

40 
93 


69 "An Older and More Diverse Nation by Midcentury," United States Census Bureau (August 2(08), 

http://www.census.gov/newsroomlreleases/archivesfpopulation/cb08-123.html. 

70 "2012 Statistical Abstract-Population: Estimates and Projections by Age, Sex, Race/Ethnicity,u United States 

Census Bureau (2012), 

http://www.census.gov/compendia/statablcatsJpooulation/estimates and projections by age sex raceethnicity 

.htm!. 

7L See Sonya Ross and Jennifer Agiesta, nAP Poll: Majority Harbor Prejudice Against Blacks,u Associated Press 

(October 2012), hnp:llbigstorv.a p.orgfarticle/a p-poll-ma jority-harbor -prejudice-against -blacks' also, "Racia I 

Attitudes Survey, N The Associated Press (Oct 2012), 

http://survevs.ap.org/data%5CGfK%sCAP Racial Attitudes Topline 09182012,pdf. 

n Shankar Vedantam, "See No Bias,u The Washing10n Post (January 2005), http://www.washingtonpost.comlwpdyn/a rticieslA27067-200s.Ia n21.html. 

71 "Fair Housing Enforcement: Time for a Change-2009 Fair Housing Trends Report, H National Fair Housing 

Alliance (May 2009), http://www.nationalfairhousinB.org/linkO ick.aspx ?fileticket=ds T 4nl HikhQ%3 D. 

74 Melvin Oliver, "Sub-Prime as a Black Catastrophe, H The American Prospect (5eptember2008), 

http://prospect.org/articlelsub-prime-black-catastrophe. 

7S Heather McGhee and Tamara Draut, "Why We Need an Independent Consumer Protection Agency Now,u Demos 

(March 2010), http://www.demos.org/sites/default/filesloublicationsl8RIEF WhyWeNeed CFPA Demos.pdf. 

76 Paul Taylor, Rakesh Kochhar, Richard Fry, Gabriel Velasco and Seth Motel, "Wealth Gaps Rise to Record Highs 

Between Whites, Blacks, and Hispanics, H Pew Research Center Social and Demographic Trends (July 2011). 

http://www.pewsocialtrends.org/filesI2011/07/SDT-Wealth-Report 7-26-11 FINAL.pdf. 

77 Meizhu l ui, "l aying the Foundation for National Prosperity: The Imperative of Closing the Racial Wealth Gap," 

INSIGHT Center for Community Economic Development,U (March 2(09), 

http://www.insightcced.Ofg/uploads/CRWGllayingTheFoundationForNationaIProsperity-MeizhuLui0309.pdf 

7S Sylvia A. Allegretto, "The State of Working America's Wealth, 2011: Throu!!h Volatility and Turmoil, the Gap 

Widens," Economic Policy Institute Briefin!! Paper (March 2011), http://www.epi.org/page/-/BriefingPaoer292.pdf. 

19 "Employment Situation Summary,H Bureau of Labor Statistics (May 2013), 

http://www.bls.gov/news.releaselempsit.nrO.htm. 

SIl Pager, Devah. 2003, "The Mark of a Criminal Record." American Journal of Sociology 108(S): 937-97S, available 

at http://www.princeton.edu/~pager/pa!!er ajs.pdf. 

5L Josh Bivens, "Using Standard Models to Benchmark the Costs of Globalization for American Workers Without a 

College Degree," The Economic Policy Institute Blog: (March 2013), htlp:/Iwww.epi.org/publication/standardmodels-benchmark<osts-gtobal izat ion. 

SlId. 

S] Robert E. Scott, "Signing Trade Deals Is a Terrible Strategy, H The Economic Policy Institute Blog (February 2013), 

http://www.epi.orglblog/signing-trade-deals-terrible-jobs-strategy. 

S4 ld. 

fI$ Thomas Philippan, "The Future of the Financial Sector," New York University (October 2(08), available at 

http://sternfinance.blogsoot.coml2008/10/future-of-financial-industry-thomas.html. 

86 Thomas Philippan, "The Evolution of the US Financial Industry from 1860 to 2007: Theory and Evidence,u 

November 2008, ava ilable at http://pages.stern.nyu.eduhphilipp/paperslfinsiz.pdf. 

s7 Waliace Turbeville, "Cracks in the Pipeline Part One: Restoring Efficiency to Wall Street and Value to Main 

St reet,U Demos (December 2012), htt p: ljwww.demos.org/sites/default/files/publicationsfCracksln ThePipeli ne10.pdf. 

sa Bruce Western and Jake Rosenfeld, "Unions, Norms, and the Rise in U.S. Wage Inequality, N American Sociological 

Review 76(4): 513-537, available at http://asr.sagepub.comlcontentI76/4/513.abstract. 

!'J ld. 

'10 Kate Brofenbrenner, "No Holds Barred-The Intensification of Employer Opposition to Organizing,U Economic 

Policy Institute (EPI) (May 2009), http://www.epi.org/publicationlbp235/. 

91 Liz Kennedy, "Otizens Actually United: The Overwhelming, Bi-Partisan Opposition to Corporate Political 

41 
94 


Spending And Support for Achievable Reforms, N Demos (November 2012), 

http:((www.demos.org/sites/default/files/publications/CitizensActuallyUnited CorporatePoliticaISpending.pdf. 

gl David Callahan and Mijin Cha, NStacked Deck: How the Dominance of Politics by the Affluent & Business 

Undermines Economic Mobility in America," Demos (February 2013), 

http://www.demos.org/sites/default/files/publications/Demos-Stacked-De<:k.pdf. 

g3 See OpenSecrets, "2012 Overview: Donor Demographics, N Center for Responsive Politics (2012), 

http://www.opensecrets.org/overview/donordemographics.php. 

94 ld. 

II!> Mijin Cha, "Communities of Color Donate Far Less to Presidential Campaign," PolicyShop: The Blogof Demos 

(November 2012), http://www.demos.org/blog/communities-color-donate-far-Iess-presidential-campaign. 

Ij6 See Allison Kopicki, "Poll: Partisan Split OVer Tax Policies,N The New York Times (January 2012), 

http://tnecaucus.blogs.nytimes.comI2012/01124/poll-partisan·split-over-taxpolicies/?partner=rssnyt&emc.:rss· 

CNN/ORC Poll (April 2012), http://i2.cdn.turner.comlcnnI2012limages104116/reI4c.pdf· The Tax Policy Brief Book: 

A Citizens Guide for the Election, and Beyond, ffCapital Gains and Dividends: How are Capital Gains Taxedr Tax 

Policy Center (last updated June 2011), http://www.taxoolicycenter .orglbriefing-booklkey-elements/ca pitalgainslhow-taxed.cfm· James Nunns and Jeffrey Rohaly, "Tax Provisions in The American Taxpayer Relief Act of 

2012 (ATRA), Tax Policy Center (January 2013), http://www.taxpolicvcenter.org/UploadedPDF/41273O-TaxProvisions-in-A TRA. pdf. 

97 United States Department of Labor, Wage and Hour Division, adjusted using Consumer Price Index, 2013. 

98 "Same Day Registration: a Demos.org Factsheet, H Demos (February 2013), 

http://www.demos.org/sites/default/files/publications/Sdr-Factsheet-Final 1.pdf. 

gg Id. 

100 U.S. Census Bureau Geographical Mobility: 2011-2012, "Table 1. General Mobility, by Race and Hispanic 

Origin, Region, Sex, Age, Relationship to Housenolder, Educational Attainment, Marital Status, Nativity, 

Tenure, and Poverty Status: 2011 to 2012," last modified October 2012, 

htto:/Iwww.census.gov/hhes/migration/data/cps/cps2012.html. 

42 
95 

PREPARED STATEMENT OF NICK HANAUER 

SECOND AVENUE PARTNERS

JUNE 6, 2013 

For 30 years, Americans on the right and left have accepted a particular explanation for the origins of prosperity in capitalist economies. It is—that rich business 

people like me are ‘‘Job Creators’’—that if taxes go up, on us or our companies, we 

will create fewer jobs. And that the lower our taxes are, the more jobs we will create 

and the more general prosperity we’ll have. 

Most Americans, and many of you in this room are certain that these claims are 

true. 

But sometimes the ideas that we know to be true are dead wrong. For thousands 

of years people were certain, positive, that earth was at the center of the universe. 

It’s not, and anyone who doesn’t know that would have a very hard time doing astronomy. 

My argument today is this: In the same way that it’s a fact that the sun, not 

earth is the center of the solar system, it’s also a fact that the middle class, not 

rich business people like me are the center of America’s economy. I’ll argue here 

that prosperity in capitalist economies never trickles down from the top. Prosperity 

is built from the middle out. 

As an entrepreneur and investor, I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy 

what we had to sell, all my businesses would have failed and all those jobs would 

have evaporated. 

That’s why I am so sure that rich business people don’t create jobs, nor do businesses, large or small. What does lead to more employment is a ‘‘circle of life’’ like 

feedback loop between customers and businesses. And only consumers can set in 

motion this virtuous cycle of increasing demand and hiring. 

That’s why the real job creators in America are middle-class consumers. The more 

money they have, and the more they can buy, the more people like me have to hire 

to meet demand. 

So when businesspeople like me take credit for creating jobs, it’s a little like 

squirrels taking credit for creating evolution. In fact, it’s the other way around. 

Anyone who’s ever run a business knows that hiring more people is a capitalists 

course of last resort, something we do if and only if increasing customer demand 

requires it. Further, that the goal of every business—profit—is largely a measure 

of our relative ability to not create jobs compared to our competitors. In this sense, 

calling ourselves job creators isn’t just inaccurate, it’s disingenuous. 

That’s why our current policies are so upside down. When you have a tax system 

in which most of the exemptions and the lowest rates benefit the richest, all in the 

name of job creation, all that happens is that the rich get richer. 

Since 1980 the share of income for the richest 1 percent of Americans has tripled 

while our effective tax rates have fallen by approximately 50 percent. 

If it were true that lower tax rates and more wealth for the wealthy would lead 

to more job creation, then today we would be drowning in jobs. 

If it was true that more profit for corporations or lower tax rates for corporations 

lead to more job creation—then it could not also be true that both corporate profits 

and unemployment are at 50 year highs. 

There can never be enough super rich Americans like me to power a great economy. I earn 1,000 times the median wage, but I do not buy 1,000 times as much 

stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few 

shirts a year, just like most American men. Like everyone else, we go out to eat 

with friends and family only occasionally. 

I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or cars or enjoy any 

meals out. Or to make up for the decreasing consumption of the vast majority of 

American families that are barely squeaking by, buried by spiraling costs and 

trapped by stagnant or declining wages. 

This is why the fast increasing inequality in our society is killing our economy. 

When most of the money in the economy ends up in just a few hands, it strangles 

consumption and creates a death spiral of falling demand. 

Significant privileges have come to capitalists like me for being perceived as ‘‘job 

creators’’ at the center of the economic universe, and the language and metaphors 

we use to defend the fairness of the current social and economic arrangements is 

telling. For instance, it is a small step from ‘‘job creator’’ to ‘‘The Creator.’’ When 

someone like me calls themselves a job creator, it sounds like we are describing how 

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the economy works. What we are actually doing is making a claim on status, power, 

and privileges. 

The extraordinary differential between the 15–20 percent tax rate on capital 

gains, dividends, and carried interest for capitalists, and the 39 percent top marginal rate on work for ordinary Americans is just one of those privileges. 

We’ve had it backward for the last 30 years. Rich businesspeople like me don’t 

create jobs. Rather, jobs are a consequence of an eco-systemic feedback loop animated by middle-class consumers, and when they thrive, businesses grow and hire, 

and owners profit—in a virtuous cycle of increasing returns that benefits everyone. 

I’d like to finish with a quick story. 

About 500 years ago, Copernicus and his pal Galileo came along and proved that 

the earth wasn’t the center of the solar system. A great achievement, but extremely 

unpopular with the political leaders of the time. 

Remember that Galileo invented the telescope, so one could see, with ones own 

eyes, the fact that he was right. You may recall however, that the leaders of the 

time didn’t much care, because if earth wasn’t the center of the universe, then earth 

was diminished—and if earth was diminished, so were they. And that fact—their 

status and power—was the only fact they really cared about. So they told Galileo 

to stick his telescope where the sun didn’t shine—and put him in jail for the rest 

of his life. And by so doing, put themselves on the wrong side of the facts, and history, forever. 

500 years later, we are arguing about what or whom is at the center of the economic universe. A few rich guys like me, or the American Middle class. 

But as sure as the sun is the center of our solar system, the middle class is the 

center of our economy. If we care about building a fast growing economy that provides opportunity for every American, then me must enact policies that build it from 

the middle out, not the top down. 

Lets not forget the fundamental law of capitalism. When workers have no money, 

businesses have no customers. 

Tax the wealthy and corporations—as we once did in this country—and invest 

that money in the middle class—as we once did in this country. Raise the minimum 

wage—to $15.00. Those polices won’t just be great for the middle class, they’ll be 

great for the poor, for businesses large and small, and the rich. 

PREPARED STATEMENT OF STEVEN D. HILL 

DIRECTOR, NEVADA GOVERNOR’S OFFICE OF ECONOMIC DEVELOPMENT

JUNE 6, 2013 

Chairman Merkley, Ranking Member Heller, and Members of the Committee, 

after nearly two decades of Nation-leading growth and prosperity, followed by a recession of equal or greater magnitude, Nevada and its people are recovering. 

Nevada’s focus is on an economy that is both vibrant and sustainable, anchored 

by our world-class tourism, gaming, and mining industries, but supported by emerging economic clusters offering good jobs across a diversified and forward-looking set 

of industries. Nevada was hit particularly hard when the housing bubble burst, and 

had to think differently in order to recover. With the leadership of our Governor and 

the legislature, and in partnership with the private sector, education, and other 

partners we have done so, and the results have started to show. 

Nevada has historically been a State in which the middle class not only could find 

a job, but could also ‘‘get ahead.’’ The State’s major industries were growing and offered employment across a wide spectrum of professions. Many good-paying jobs, 

and a growing number of jobs, were available for candidates with modest education 

requirements. Job growth from 1990 through 2006 averaged nearly 5 percent, primarily driven by the gaming and construction industries. Unemployment was low, 

and demand for workers drove inflation adjusted wages up nearly 14 percent between 2000 and 2006. 

But by 2007, Nevada was at the center of the housing crisis—a crisis not only 

for homeowners throughout the State, but also for the 100,000 people in the construction industry who lost their jobs. While the State has turned the corner, again 

leading the Nation in home price appreciation over the past 12 months, and leading 

the Nation in unemployment reduction, per capita foreclosures remain the country’s 

highest, more than 50 percent of middle class families remain underwater in their 

mortgages, and unemployment is 9.6 percent. Real progress has been made, but 

much work remains. 

Moving forward, Nevada’s economy will be different. While tourism and gaming 

is recovering, major expansion in that industry will not, in and of itself, drive 

97 

growth in the State. Construction will achieve equilibrium, but many of the jobs lost 

in that industry will not return. In order to offer our middle class that same opportunity to ‘‘get ahead,’’ Nevada is intentionally embarking on a different economic 

trajectory. Emphasis is being placed on emerging sectors that can provide diverse, 

sustainable, and high-paying jobs—jobs in technology, advanced manufacturing and 

healthcare, jobs that innovate, jobs that export. 

The middle class needs resolution to the housing crisis that continues to affect so 

many, and they need opportunity for a good job. Much is left to do, but Nevada is 

on a positive trajectory. 

1993–2007 

From 1993 through 2007, Nevada led the Nation in job growth, with the number 

of jobs in the State growing from 650,000 in 1993 to 1,300,000 at its peak at the 

end of 2007, a nearly 5 percent compounded annual growth rate. 

Some key statistics: 

• Median home price rose from $125,000 in 1995 to $320,000 in 2006 

• Residential raw land cost rose from $40,000 in 1995 to $560,000 in 2006 

• Residential building permits rose from 20,000 in 1993 to 46,000 in 2006 

• Household earnings rose from $37,000 in 1993 to $62,000 in 2007 

During this same period, construction employment grew from 45,000 to 146,000, 

moving from approximately 6.5 percent of total employment to 11.5 percent at its 

peak in mid-2006, compared with a relatively stable national average of 5 percent. 

In other words, Nevada had 85,000 more construction workers employed than the 

national average would predict. 

While in retrospect, the bubble was obviously building, Nevada’s most reliable historical leading indicator—new hotel room construction—was pointing to even more 

growth. With 40,000 new rooms to be built, demand for an additional 130,000 jobs, 

100,000 homes, and all of the required infrastructure such as schools, streets, and 

utilities, as well as the follow-on commercial space would be needed. With good reason, Nevada’s focus in 2005 was how to deal with an accelerating rate of growth. 

2008–2010 

But growth and prosperity—even a sense of security—came to an abrupt halt as 

2007 ended and 2008 began. The housing bubble burst, construction fell precipitously, the recession hit the gaming and tourism industry, and Nevadans lost jobs 

in record numbers. 

Key statistics for the period: 

• Median home prices fell from $320,000 to $125,000 

• Residential building permits fell from 46,000 to 5,000 

• Construction employment fell from 146,000 to 50,000—a loss of 96,000 jobs 

• Total employment fell from a high of 1,286,000 to 1,111,000—a loss of 175,000 

jobs 

• Unemployment rose from a low of 4.2 percent in December of 2006 to a high 

of 14.0 percent in September 2010 

Throughout this period, Nevada led the Nation in both unemployment and foreclosures—a 1–2 punch that put the middle class on the mat. The lack of job opportunities, while being anchored to underwater mortgages, caused many to seek work 

where they could find it—often at lower pay and with fewer hours. The uncertain 

national and global economic outlook only served to exacerbate the situation. 

A Focus on Economic Development 

Entering 2011, there was urgency throughout Nevada to bring jobs to the State, 

help existing industries recover and grow a more diverse economy. Following his 

election in 2010, Governor Sandoval worked with the 2011 Legislature to restructure, refocus, and reenergize the State’s economic development effort. 

Following the direction laid out by the Governor and the legislature, Nevada has 

embarked on a parallel path—doing everything possible to get Nevadans back to 

work quickly while working to build on its strengths to grow future economic sectors 

that provide good-paying, stable jobs. 

To create the best job-creation environment possible, the Governor’s first action 

in office was an executive order freezing regulations and ordering all State agencies 

to review existing regulations to determine which could be eliminated or streamlined. This effort resulted in over 600 regulations being eliminated and the reform 

of over 1,000. But regulatory reform is not just about eliminating regulations. Clarity, consistency, and response speed are equally important. Nevada’s focus on assistVerDate Nov 24 2008 15:13 Aug 30, 2013 Jkt 048080 PO 00000 Frm 00101 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\06-06 STATE OF THE AMERICAN DREAM -- ECONOMIC POLICY AND
98 

ing job creation includes a focus on finding a way to say ‘‘yes’’ and doing so quickly, 

while upholding standards necessary for the safety and health of our workers and 

citizens. 

Immediate attention was also directed to the nearly 100,000 construction workers 

and 50,000 hospitality and gaming employees who were out of work. Many of these 

would need to find employment in different industries and could not wait years to 

be retrained in order to do so. Manufacturing, logistics and distribution, mining, and 

back office services were all identified as areas where the skills of out of work Nevadans could be utilized. Expanding companies have recognized this and are moving 

to the State. 

Shorter-term training programs, aligned with near-term employment opportunities, were also given high priority. Certificate programs in information technology, 

health care, and manufacturing have been emphasized. Community colleges have 

become adept at designing short-term programs for businesses that need workforce 

training to meet a particular need—training that can be done on campus or at the 

business. 

Over the coming 3 to 5 years, Nevada looks to develop and grow regional industry 

clusters, capitalizing on the State’s strengths, and focusing on exporting, innovation 

and the commercialization of research, and advanced manufacturing. Some of the 

key initiatives include: 

• The only statewide response to the Federal Aviation Administration’s Screening 

Information Request to be designated at one of six test sites for unmanned aircraft systems. Nevada offers the Nation’s best airspace for safe and private testing, vast experience in the field, and a welcoming environment evidenced by letters of support from our entire congressional delegation, the Governor and legislature, and a host of counties and cities across the State. The industry has very 

high growth potential and can bring thousands of good-paying jobs to Nevada. 

• Early this year, partnering with IBM, Nevada launched a water Center of Excellence. The COE aims to combine expertise from higher education, including 

the Desert Research Institute, globally recognized for its work in the water and 

energy field, and the Southern Nevada Water Authority, with data analytics to 

develop cutting-edge products, services, and methods to address water needs in 

the State and around the world. 

• The 2013 legislature passed the Nation’s first online gaming legislation, allowing intrastate play to be governed by the world’s most respected regulatory 

framework. The legislation also permitted compacts to be developed with other 

States. Building on Nevada’s position as the global leader in gaming, the new 

industry can bring large numbers of jobs to the State in a broad variety of fields 

including digital media, information technology and cyber security, and professional services. 

• The 2013 legislature provided funding for the Knowledge Fund, a joint effort 

between the Governor’s Office of Economic Development and the research institutions within the Nevada System of Higher Education. The Knowledge Fund 

is designed to fund specific projects to advance the highest opportunity research 

and commercialization projects within the university system, with a focus on 

product, service, and job creation, and company spin-offs. 

• In addition to water technology and efficiency, Nevada is advancing its sustainability position in both energy and agriculture. Recently passed legislation will 

replace coal with cleaner energy sources including an additional commitment to 

renewable energy. Nevada possesses abundant geothermal and solar resources, 

offering not only the opportunity for clean energy and energy security to the 

State and the region, but also a host of good jobs. The State sponsored an Indoor Agriculture conference, drawing attendance from around the State and the 

world. 

• Nevada also looks to further capitalize on its connection to the world and its 

proximity to the nearly 60 million potential customers in the western U.S. The 

State’s geographic position, Las Vegas’ attraction around the globe, and the 

State’s business environment make Nevada an ideal location for manufacturing, 

assembly, and distribution, an industry that is already an important sector in 

the State. Construction of I-11 connecting Las Vegas and Phoenix, the two largest cities in the country without an interstate highway connection, and an important component in the CANAMEX Corridor, will be key to expanding this 

industry. 

• Nevada also has strong and growing Hispanic and Asian populations with established businesses connections in Latin America and Asia, providing a platform for growth. The Governor recently led trade missions to China and Korea, 

99 

and will lead a mission to Mexico in July. Companies that export are typically 

more stable and pay higher wages, and these trade missions facilitate new business relationships and strengthen existing ones. 

• Sector Councils in each of 9 industries have been formed, bringing together 

leaders in business, education, labor, and Government to determine current and 

future workforce needs. These Councils identify both labor and skill gaps, help 

direct resources, and bring alignment to the process of training for real, available jobs. 

Recovery: 2011–2013 

Beginning in late 2010, Nevada started to recover. The pace of recovery was somewhat slow and uneven in 2011 and led primarily by the tourism and gaming industry, but began to accelerate in 2012 and into 2013. During the last 12 months companies such as Apple, Solar City, Take Two Interactive, and IBM have invested in 

the State. Just last week Berkshire Hathaway’s MidAmerican Energy agreed to purchase the State’s largest electric utility, NV Energy. Nevada now leads the Nation 

in both the rate of unemployment decline and home price appreciation. 

Key statistics for the period: 

• Median home price has increased from $125,000 to $150,000 

• Land for new home construction is now $400,000 per acre 

• 51,000 jobs have been added from the September 2010 low, 30,000 jobs in 2012 

alone 

• Construction employment has increased slightly but is just 4.5 percent of total 

employment 

• Unemployment has decreased from 14.0 percent to 9.6 percent, and the size of 

the workforce has started to increase 

Additional signs of growth can be seen. The gaming industry, which led the State 

out of the recession by adding 20,000 employees during 2011 and 2012, is strengthening. Projects totaling nearly $10 billion have been announced with the last 3 

months along the Las Vegas Strip, including an expansion of the Las Vegas Convention Center, a major new hotel casino, the reopening of the Sahara Hotel, and an 

arena. A number of exciting projects across a broad spectrum of industries are on 

the horizon. 

During the coming 3 to 5 years. And with continued focus on innovation, advanced 

manufacturing, exporting, and improved workforce development, job opportunities in 

the State will not only grow in number, but the diversity and quality of jobs will 

improve, allowing the middle class to grow in number and once again, get ahead.