Next door to Yale, the bastion of privilege that turns out the land’s leaders, lies a tent city of America’s poor, huddled masses. Ed Vulliamy reports on the rise in inequality as the nation prepares to vote

Sunday November 3, 2002 The Observer

The north wind cuts cold and sudden across the historic green of New Haven. It blows through the ‘tent city’ where the homeless huddle. And it blows round the spires and quadrangles of Yale University, one of America’s richest Ivy League colleges.

The contrast is stark: Charlene Johnson, three months pregnant, emerges from her bivouac, worrying about the winter that lies between her and her due date. And all around are Yale’s stone walls, elegant colonial churches and smart people walking past boutiques and coffee shops, carrying their course books.

‘You know what’s underneath you?’ challenges Rod Cleary, who was released from prison in Los Angeles after a conviction for gang fighting, found but lost a job in New Haven, and has now been evicted. ‘I’ll tell ya: bones. This green was a cemetery once; you’re sitting on a pauper’s grave. And, man, that’s what it’s going to be again if we ain’t careful.’

Charlene fell behind with her rent in June and took a bribe of $200 to move out of her digs, so the landlord could hike up the price. ‘It seemed like I had some money for once, and it was summer.’ Her son Nikolas was billeted with a friend and Charlene started looking for a place with her boyfriend, Scott, hopefully before the cold set in. Without success – Scott was laid off on Wednesday from a construction firm. ‘Not enough work,’ he says. ‘And once you’re out, you’re a speck of dirt on the ground, and they walk over you.’

New Haven’s tent city was established after the authorities closed down a homeless overflow shelter a few weeks ago. At sundown yesterday it was to be cleared by the police, with Charlene, Scott, Rod and 150 others sent on their way into what promises to be a vicious winter.

New Haven is a metaphor for the America which on Tuesday elects its Senate and House of Representatives. It is the country’s fourth poorest city, where the ghetto laps at the walls of a university worth $11 billion (¢G7bn) in tax-exempt endowments, educating America’s next generation of rulers. A sign at the freeway turn-off advertises New Haven as the birthplace of President George Bush.

It is a city with the same infant mortality rate as Malaysia and a terrifying rate of deaths from Aids – one day care centre alone commemorated the loss of 600 clients at a memorial service on Wednesday. But it is located in America’ richest state, Connecticut, which has, proportionally, more millionaires than any other.

This is the super-rich New York hinterland for those too wealthy even to feel the pinch on Wall Street. It is called the ‘Zebra Coast’, laid out in strips of black/white, black/white; poor/rich, poor/rich. And in New Haven the polarity is underpinned by the history of Yale University’s engagement in the slave trade – currently being excavated by some of its own students.

‘New Haven,’ says the Rev David Lee of Varick Church in the city’s northwestern ghetto, ‘is a microcosm of America. It’s the vicious cycle between rich and poor and the system of exploitation. The wealth is in your face all the time, something you can never aspire to. It’s like being a kid in a candy store, being told you can look but you can’t never have a lollipop.’

The mall downtown, on the ‘wrong’ side of the green, is a ghost mall; just a few ‘hoodrats’ hanging around Cross Flava records and security guards to keep them in order. ‘Folks who commute to work,’ says the boy behind the counter, ‘they spend where they live. And the people who live here don’t have anything to spend.’

Statistics released last month by the government census bureau show that for the first time in 10 years the number of people caught in the poverty trap has suddenly increased. Unemployment is up from 4.2 per cent in 2000 to 5.7 per cent last year. While the middle class shrinks, the numbers living below the official poverty line of $18,104 a year for a family of four has shot up to 33 million – from 11.3 to 11.7 per cent. That’s the first increase since 1992.

While President Bush’s windfall tax breaks to the super-rich breezed through Congress (with Democratic help), the proposed rise in the minimum wage is frozen.

The proportion of children without health cover has increased from 63.8 per cent to 67.1 per cent. The poverty rate for children in the US is worse than in 19 ‘rich’ countries, according to a study by the University of Michigan.

Income statistics showed the first significant decline in average income among blacks in two decades; the white average also fell, and only Hispanics maintained their level.

Statisticians are struck by differences between this dive and the usual downward turns that accompany recessions. ‘The poor are trailing further behind than in the past,’ says Robert Greenstein of the Centre on Budget and Policy Priorities in Washington. ‘The increase in poverty is likely to be larger in 2002.’

Such is the power of money in Connecticut and its neighbours that the North-East was the only region in the country in which the mean income did not decline. But the price was paid here where Elm Street, after skirting the mock-Oxbridge walls and towers of Yale, twists abruptly into New Haven’s own nightmare.

Students have been given special maps, and advice not to venture past the CITGO gas station, where the ghetto begins. Houses are boarded up and gas stations take cash only – payable up front – and have bullet-proof glass and bars at the pay point. Sandwich and gift card stores also deal in Western Union money transfers, like the one Carl Robbins is sending back to his family in Kingston, Jamaica – $150 out of the $650 he grossed this week as a hospital janitor.

At the gas station on Dixwell Avenue, Everton Mayne gets his money back on a pack of Newport cigarettes because he has found the same pack down the road four cents cheaper. ‘You got to think about these things,’ he cautions.

Monica Osborn works in the operating rooms at Yale and New Haven Hospital, and in 11 years has increased her wage from $8 to $13 an hour (Connecticut calculates that $17 is the ‘liveable wage’). Recently her son suffered concussion and, although she works at a hospital, health insurance comes extra and she was caught out. Her employer docked the cost of treatment from her wages, leaving her to manage for two months on $300 for a family of four. ‘I can feel it getting worse,’ she says. ‘Trying to feed the kids, we all have two, maybe three, jobs. I do hair braiding to get by.’

Wages at the university are a little better, says Mark Wilson, who for years worked on the ancillary workforce before becoming an officer of the hotel and catering workers’ union that fought to close what it calls the ‘casual pipeline’ whereby the university would lay off employees the day before it was obliged to take them on staff.

‘I don’t actually wipe their butts,’ says Wesley Smith, earning $11 an hour loading a trolley full of students’ dirty laundry, ‘but I got to get clean what they wipe off.’

Yale is exempt from paying city taxes, except on commercial property it owns. But a consortium of community groups asked the university to donate a single day’s interest on its invested endowment – that’s $5.2 million – to the city’s public schools. So far, no response.

‘We just wanted some kind of partnership,’ says the Rev David Lee, who – as a graduate of Yale Divinity School – this year harvested enough signatures to seek election to the university board. He was seen off by the architect Maya Li, in what was regarded as a brazen snub to what Lee’s church calls ‘the host community’.

Dixwell Avenue is where Lee tries ‘to put a bit of hope back in people’s eyes that’s just been taken away’. He says: ‘I can feel it, just over the past year; people is sinking back down. It’s hard to keep people off drugs. It’s hard to tell people not to go to crime, when they made that extra effort to straighten out, then got beaten back down again. I had a man in my congregation come to me on Sunday saying his daughter who is 13 was considering suicide.’

There is now a brutally simple barometer of poverty in modern America: HIV.

At the Immanuel Baptist Church on Chapel Street, a few blocks from fancy restaurants where the young elite go for dinner, there was a service with a difference on Wednesday. The Aids Interfaith Network was commemorating the lives of 600 of its clients who have died of the disease since it was established 15 years ago.

Some of the congregation were living with HIV, a couple in wheelchairs; others were those who work with and for them. The network was set up by a group of churches to fill the abyss between a dire need and the malfunctioning of America’ commercial healthcare system.

Project director Joyce Poole says: ‘Aids has become the disease of the poor – 80 to 90 per cent of our clients are living below the poverty level; 15 per cent are homeless; most have not worked in years. Half are dually diagnosed with HIV and hepatitis C. If you can’t support yourself, you do it by other means, and those means are often criminal. Most of our clients have had at least one encounter with the Department of Corrections.’

Yet Connecticut’s Aids prevention budget has just been cut by 30 per cent – due, says America’s richest state, to the economic downturn. ‘This is a discourse,’ says Poole, ‘about poverty.’ And as America prepares to go to the polls, the gap between rich and poor is widening by the day.

Hard times

¡P One in 11 families, one in nine Americans, and one in six children are officially poor.

¡P The most affluent fifth of the population received half of all household income last year. The poorest fifth got 3.5 per cent.

¡P The official poverty line is an income of $18,104 pa (¡Z570) for a family of four. A single parent of two working full-time for a minimum wage would make $10,712 (¡Z46).

¡P 40 per cent of homeless men are veterans.

¡P Up to a fifth of America’s food, worth $31bn, goes to waste each year, with 130lb of food per person ending up in landfills.

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Ten years ago grunge musicians and college-age Cassandras who had never held a day job preached that corporate America would crush their generation’s soul and leave them without a pension plan. Films like Singles and Reality Bites chronicled their transition from college graduate to Gap salesclerk.

A few years later the core of Generation X–the 40 million Americans born between 1966 and 1975–found themselves riding the wildest economic bull ever. Salesclerks became programmers; coffee slingers morphed into experts in Java (computerese, that is)–all flush with stock options and eye-popping salaries. Now that the thrill ride is over, Gen X’s plight seems particularly bruising. No generation since the Depression has been set up for failure like this. Everything the dot-com boom delivered has been taken away–and then some. Real wages are falling, wealth continues to shift from younger to older, and education costs are surging. Worse yet, for some Gen Xers, their peak earning years are behind them. Buried in college and credit card debt, a lot of them won’t be able to catch up as they approach their prime spending years.

FORTUNE recently encountered the bitter and (now) experienced voice of Generation X in a chain restaurant in suburban Dallas. Age 32 and piercing-free, Karen Doss has found out that the alternative rockers were right. To pay for college she worked full-time as a secretary at Pillsbury world headquarters. After graduation in 1993, she accepted her sole job offer as an advertising copywriter, even though she despised the industry. She finally quit last year to get her real estate license so that she could better support her husband while he fulfills his dream of owning a bar.

Halfway to pension age, she has just $5,000 in a 401(k) and $20,000 in home equity. Ideally, someone her age should have at least $100,000 stashed away. “I don’t have a corporate pension, and they aren’t what they were,” she says. “Social Security is obsolete and ineffective. And I already know that I’m going to have to have a private health-care plan. I’m angry that I can’t seem to get a break.”

Yes, yes, yes, we know what you’re thinking. The free-spending slackers have only themselves to blame, since the dot-com boom should have made them rich for life. On the surface that’s true. A 30-year-old today is 50% more likely to have a bachelor’s degree than his counterpart in 1974 and earns $5,000 more a year, adjusted for inflation. But that’s where the good news stops. He also has more in student loans and credit card debt, is less likely to own a home, and is just as likely to be unemployed. His salary probably topped out during the boom, whereas his predecessor’s rose throughout his career. Social Security will start to evaporate as he turns 50–or before, if the lockbox gets raided–so he’ll have to depend almost completely on his own savings for retirement. The comparison with a 30-year-old in 1984 isn’t any rosier.

Gen X “has done worse than their parents have done according to a number of dimensions, like net worth and home ownership,” says Edward Wolff, a New York University economist who studies trends in income and wealth. In a recent paper Wolff notes that young households lay claim to a smaller percentage of total U.S. wealth than they did in 1989.

Additionally, the inflation-adjusted median net worth of a Gen X household ($9,000) is lower than that of a comparable household in 1989, according to the Federal Reserve’s Survey of Consumer Finances.

Silicon Valley and Manhattan aren’t the only stomping grounds for disgruntled young professionals. FORTUNE interviewed more than 50 Gen Xers in Dallas, Louisville, and Seattle, with jobs ranging from construction manager to software engineer (see table). Battered by the economy and the bad luck of being born between Madonna and Britney Spears, they’re Generation Wrecked.

The kids who toted STAR WARS lunchboxes are the most highly educated generation in American history: Almost 60% of Gen Xers have some college education, and 6.6% have graduate school degrees. The Census Bureau calls their pursuit of higher education the “Big Payoff,” since historically a college-educated full-time worker earns 1.8 times more over his lifetime than a high school graduate.

When you can’t find a job or pay your student loans, though, college can seem like the Big Rip-Off. Today, the median student loan debt is at its highest level ever, $17,000, compared with $2,000 when the baby-boomers were in their 20s. According to educational lender Nellie Mae, graduating students average $20,402 in combined student loans and credit card debt. Those who have borrowed to pay for professional school, especially doctors and lawyers, are increasingly likely to have immense debt that is not reflected in proportionately higher salaries. Twenty-eight percent of those surveyed by Nellie Mae had combined undergraduate and graduate student debt of more than $30,000, and for 22%, their loan payments ate up more than one-fifth of their monthly income.

After midnight at a young professionals party in Louisville, Steve Flores, 31, and his wife, Jessica, 32, mingle, while the rest of the revelers line up for last call. Steve is a communications specialist for the party’s sponsor, Brown-Forman, the big distiller. While working full-time, he is also pursuing an MBA. Although Steve worked to help pay for college, five years after graduation he has $40,000 of undergraduate debt to pay off; Jessica, an art therapist and professional harpist, has $50,000 in student loans. “I haven’t started paying back my student loans for undergrad because they’re deferred. I’m not taking any student loans for grad school,” Steve says. He isn’t so jovial when he thinks about the total tab. “We’re dreading the day we actually have to start paying.”

Those Big Payoff estimates rely on what 50-year-old college graduates make today to guess what 50-year-olds will make 20 years from now. That’s not all that useful. “Whereas their parents experienced rising wages over their lifetime, Generation X may not. So college may have been a bad investment,” says Wolff, the NYU economist. Adds Bruce Tulgan, a Gen Xer and founder of RainmakerThinking, a consultancy that studies labor trends: “I had a college president say to me, ‘I don’t know how much longer I can pull this off because people will start to ask, Is it worth this much money to be that much smarter?’ ”

A common misconception is that Gen Xers left college to find work in the dot-com go-go years. Not so. In fact, the climate in which they began working–the late ’80s and early ’90s–was pretty similar to today’s: an economic downturn followed by a jobless recovery. Gen Xers managed to survive in that environment by denouncing long-held workplace tenets like corporate loyalty.

It would take a skilled cartographer to map 28-year-old David Li’s convoluted dash through org charts at both big and small companies. After college in 1996, Li started out as an analyst for Accenture, worked as a health-care IT consultant for two other firms, and then became CTO of Claimshop.com, a medical claims processor.

Now, unemployed for a year and living in Dallas, Li says, “I’m not really looking for an entry-level position. But I need to realize that the job market now is a lot tighter than it had been when I first graduated from school.” He’s looking at jobs that pay around $50,000, 40% below the salary he was collecting at Claimshop. “I’m just hoping for something more along the lines of what you would normally expect to see from someone who has been out of school for four to five years.”

Li will probably find a job–at 6%, the unemployment rate among Gen Xers is around the national average–but he and others are discovering that previous experience means next to nothing. Jenifer Garcia is temping as a bartender in Seattle after having worked as a hardware tester for Intel, a programmer for MSN, and a manager for Barnes & Noble’s online division. Now the 29-year-old is applying for a full-time file clerk position again. “I feel like I’m 18 again, and not in a good way. I’ve gone through all of my savings and moved back in with my mom.”

Even some of Seattle’s dot-com winners have been humbled. Across town in a tonier part of Seattle, Rachel Best-Campbell and Alex Campbell bought their $700,000 house with proceeds from Alex’s stock options. They sold most of their shares of Cache Flow, now known as Blue Coat Systems, at $96. (The company’s stock now trades at $3, after a recent reverse split.) The Campbells’ luck dried up in April, when Alex was laid off, rehired as a contractor without benefits, then rehired yet again as a full-time employee but at a lower level.

After months of wondering whether Alex would have a job, Rachel feels no guilt about getting rich during the boom. “Clearly someone out there had $96 to pay for that share of stock, and they wanted it, and they bought it. My dad likes to say, ‘My 25-year-old daughter–she’s retired now.'”

Those who didn’t fulfill their early-retirement dreams in the late ’90s are beginning to realize that they may be in the workforce longer than their parents. “You don’t find many 65-year-olds working in advertising, so at some point the money must get good enough for people to retire. I don’t know,” says Luke Blackburn, a 32-year-old senior manager at a Louisville advertising firm. Luke has a house–he used money he received as a gift for a down payment–but little in the way of retirement savings. (Total: $0. He should have $50,000. Although he and Doss are the same age, his savings estimate is less since his living expenses are lower.) “I don’t see much future return for investments, either stock or even Social Security benefits. I plan for the kids, but there’s not much room for extra.” Luke doesn’t have a financial planner either. “The brokers only call you if they think you have money,” he says. “They started calling me when they saw my job promotion announced in the newspaper.”

At least the brokers’ attempts aren’t laughable. At a recent Department of Labor summit, a group of the country’s top economists, politicians, and marketers decided that the best way to get Generation X to plan for retirement was through targeted advertising campaigns. Slogans included “It’s your money, it’s your choice, and it’s your future,” “Save for independence day,” and “Wazzup.” Whatever.

Instead of creating catch phrases, the government should focus on creating retirement options that give Gen Xers –and baby-boomers too, for that matter–the flexibility to withdraw money from their accounts if they’re temporarily unemployed, starting a business, or just taking time out, say financial planners. Most important, the retirement accounts need to be portable to match the winding job paths of Gen Xers.

A New York Life Investment Management survey of high-net-worth Gen Xers found that the respondents thought they needed $2 million to retire. Not even close, says Beverly Moore, who conducted the study. A Gen Xer who makes $100,000 and wants to retire at 59 needs $7.3 million net of taxes to sustain that lifestyle. (That means saving $2,600 a month and assumes an 8% return.) The truth of the matter is that very few Gen Xers are saving enough to reach even the $2 million benchmark.

And a return to economic good times doesn’t guarantee that most Gen Xers will reach that level. Remember that many of the problems that existed in the early ’90s including falling real wages and the slow disappearance of the middle class, weren’t erased by the boom. In the case of wages, they only inched up during the dot-com years. (Economists are still trying to figure out why they didn’t rise more. One possibility: the influx of skilled foreign labor.) And of the wealth the boom created, the richest households gobbled up a disproportionate amount.

Back in Dallas, Karen Doss says she’s angry that she hasn’t been able to rely on family, an employer, or the government to help with her future. “The biggest problem with Social Security is that we have no control,” she says. “Sure, you can put your money away, but Enron will not go away, and there is going to be another WorldCom. [Corporate America] will still lie and steal our money.”

So is Karen prepared? On this subject, she does her best slacker impression. “I can’t even tell you how much I have in my 401(k), and I have two of them floating out there with companies. I’m just going to hope it works out at this point. I just wanna die young so I don’t have to deal with it.”

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