Over the past 50 years, lots of things have changed in the United States. Here are a few examples.
1) A child’s chance of earning more than his or her parents has plummeted from 90 to 50 percent.
2) Earnings by the top 1 percent of Americans nearly tripled, while middle-class wages have been basically frozen for four decades, adjusting for inflation.
3.) Self-inflicted deaths — from opioid use and other drug addictions — are at record highs.
4) Nearly one in five children in the US are now at risk of going hungry.
5) Among the 35 richest countries in the world, the US now has the highest infant mortality rate and the lowest life expectancy.
These facts, and many others, are cataloged in a new book by Steven Brill about America’s gradual decline over the last half-century. Brill has been writing about class warfare in the US since 2011, and the picture he paints is as depressing as it is persuasive. The book argues the people with the most advantages in the American economy have used that privilege to catapult themselves ahead of everyone else, and then rigged the system — to cement their position at the top, and leave the less fortunate behind.
There isn’t one villain or one pivotal moment, but there really were several different things that started happening at the same time, and they fed off each other. One example is the movement towards corporate free speech — that supplied the money and the power for all the lawyers who are being hired in Washington to be lobbyists, and to fight regulations, to fight labor laws. That, in turn, gave companies much more power, and it weakened labor unions, which consequently undermined support for a real program for job retraining in the face of automation, and in the face of global trade. There were several things like this that made sense at the time, but in retrospect, they kickstarted a chain of events that led to disaster.
And what’s happened over the last three or four years is that big swaths of the unprotected people in this country have gotten very frustrated and angry that basically nothing is working for them — whether it’s the economy, or the highways, or the power grid, or the tax code, or job training programs, or public education, or health care. They basically have the sense that the government’s responsibility to provide for the common good is gone. It’s evaporated. This is why they reacted, or at least 46 percent of them reacted, the way they did in the 2016 election, which was really an effect of severe frustration — “Let’s just elect this guy who’s promising all this stuff. He seems really unconventional, but at least he says exactly what’s on his mind. Let’s try this.”
And the protected class? Well, they’re the “winners” in our system who don’t need a good system of public education because their kids go to private school, who don’t care about mass transit because they can afford to drive anywhere, and they don’t need public health care because they can pay for private coverage. In short, they’re not invested in the common good because they’re protected, and the system is rigged to keep them that way. In many cases, the people doing the most damage aren’t breaking any laws or consciously trying to hurt anyone else. They’re simply doing what they were told to do — go to prestigious law schools, get a job at a prestigious law firm, and make lots of money. But the end result of what they’ve done is increase the gap between the protected and the unprotected, and to create a country that is more unequal and less fair.
A big theme in the book is short-term thinking. One example is ignoring the decline of infrastructure, because infrastructure is a really slow-moving crisis until a bridge collapses, as it did in Minneapolis. That bridge was inspected and deemed to have been dangerously defective 15 years before it collapsed, but politicians don’t win headlines for saying, “I’m going to repair that bridge.” That’s the sort of short-term thinking that is ruining us. It happens on Wall Street all the time. If you do stock buybacks instead of investing in your company, you get a quick hit to the stock price. Your quarterly bonus goes up, but the long-term interests of not only the country but actually the corporation that you’re supposed to be serving is not served. Short-term thinking like this drives everything now, in business and in politics, and it’s making it impossible to invest in the country’s long-term health. Can you imagine Congress or the president today coming up with a 20-year plan to build an interstate highway system, as Eisenhower did in 1958? Nobody does that anymore. And that’s our problem.
I think we need to redirect our old values. The values that were hijacked — the First Amendment, due process, meritocracy, the financial and legal engineering — they need to be redirected to undo some of the damage that’s been done. We have to demand leaders in Washington and state capitals who unite us, who will tell the frustrated middle class that they have more in common with the poor than with the protected class. If we can’t do these things, we’re in trouble. I conceived the book as an autopsy of the “American dream” when I started, but I also realized that there was another part of the story. In the course of trying to collect all the facts for the autopsy, I started talking to the people who were tackling campaign finance or infrastructure or income inequality, and I realized that there were a lot of people out there doing really important work, really good work. So yes, things are very bad, but the patient isn’t quite dead yet — there are some cures that are still possible.
There are many other factors at play — it’s almost impossible to pinpoint just one as to why so many Americans are teetering on the edge of being one surprise expense away from a major financial emergency. One hitch in the system is that our perspective of “good money,” or what draws the lines between the middle class — rich and poor — hasn’t changed in over 50 years. The official Federal poverty measure is a calculation used to determine who is poor in America. However, the measure was created in 1963 and is based on 1955 data. Many economic analysts have previously stated it’s wildly outdated and needs improving to better serve the public. The calculation is based solely on income and takes into consideration the cost of a minimum food diet in 1963. It also doesn’t take into account non-cash benefits, like food stamps, which can be received by consumers whose incomes sit above the poverty line but still not enough to be food secure.
And while the government hasn’t reevaluated what it means to make good money in America, most workers are seeing their wages flatline as living costs increase. In 2018, Pew Research found that the real average wage had the same purchasing power as it did 40 years prior. Wages that have increased during this time period have “gone largely to the highest earners,” according to Pew. A December 2018 Bankrate survey has similar findings with 3 out of 5 American workers saying they haven’t seen a pay increase in the previous year. “Even as we’ve finally begun to see wages rise very late in the nearly decade-old economic expansion, there is still a relative lack of middle-wage, middle-skill jobs,” says Mark Hamrick, senior economic analyst at Bankrate. “Those who have benefited more often have been at the low and high ends of the income spectrum.”
Hamrick also cites income inequality to be a major player in why so many moderate-income Americans are facing financial challenges. “Labor force participation is another factor which helps to give us a better idea of what the job market looks like on-the-ground, so to speak,” Hamrick says. “We know that it is lower in rural areas, higher in urban areas — an indication of another aspect of income inequality.” While wages struggle to keep up, living expenses continue to rise and become more difficult to overcome. Health care costs are the No. 1 factor pushing Americans into poverty. Student loan debt has reached $1.5 trillion, and monthly payments are holding consumers back from meeting major financial milestones. A dual-income household pays as much as 11 percent of its income on child care, according to Child Care Aware of America, a nonprofit organization focusing on affordable child care.
All of these factors combine to paint a blurry picture of a struggling working class. “There is not a succinct explanation for why so many Americans experience economic distress, some of which is self-inflicted,” Hamrick says. “Many fail to choose to live beneath their means. Many aren’t able to earn sufficient income or have been hit with unexpected near-catastrophic expenses, including because of unemployment, bad health or injury.”
Alongside the surprisingly weak jobs report issued last Friday, the Bureau of Labor Statistics reported on productivity. The real wage report is available, too. Economists have long been expecting that wages would start to rise faster as unemployment remains low. With fewer people looking for work, employers usually start to offer higher wages to retain their best workers or to attract new ones as business expands. Journalists have reported stories about companies poaching workers from their competitors with offers of higher pay. But the numbers have not really backed this picture up. The latest data show a bit of an uptick, with inflation-adjusted hourly wages up 1.9 percent over a year ago. That is a nice improvement from the measly 0.3 percent real wage increase recorded the previous year but hardly the kind of number that would make workers feel that their paychecks are truly expanding after all these years. The pent-up frustration of years of slow wage growth and high unemployment since the Great Recession of 2008 will not go away quickly in any case. To economists and especially to the Federal Reserve, the critical question is whether this incipient acceleration of wage growth could actually wake the sleeping dragon of inflation. So far, so good, but what lies around the corner?
Another very relevant piece of information is the growth of productivity. If each worker produces more per hour, companies can handle paying higher real wages because they can spread the cost over more output. Productivity growth has also been frustratingly low in the past years. The last data show a small improvement in 2018, with labor productivity growth increasing from 1.1 percent in 2017 to 1.3 percent in 2018. These are not numbers that herald a rapid economic expansion. Back in the halcyon days of the 1950s and 1960s, productivity grew 3 percent a year. Such sluggish productivity growth is one reason why our current expansion hardly feels like a boom. The economy’s vital signs sound fine — inflation near 2 percent, unemployment at 3.8 percent and GDP growth of 2.9 percent in 2018. But limited wage growth after years of stagnation helps explain why this is not a feel-good economy. Not to mention that fact that a smaller fraction of the population is actually working now than back in 2007 before the whole thing went south. The labor force participation rate has fallen by more than 3 percentage points over that time, meaning that about 5 million fewer Americans are either employed or actively seeking work. Why has productivity grown so slowly? It may seem paradoxical that, with the advent of the gig economy and the ongoing fear of automation seemingly reducing the labor used in many goods and services, productivity is not growing that rapidly. But productivity increases are mainly the result of new investment.
With the decline of many large-scale manufacturing industry and dramatic cutbacks in government-funded investment after the recession and fiscal stimulus program, investment is actually not especially high. The 2017 tax cuts did not produce a big bump in investment either, despite the optimistic claims of the bill’s supporters and promoters. Nonresidential investment growth picked up moderately in 2018 but has not grown at the double-digit rates seen in the past. Economists increasingly talk with concern about increasing market power of companies. Giants in tech (Apple, Amazon, Facebook and Google), telecommunications (Verizon and AT&T) and banking (JPMorgan Chase) all play an increasing role in our economy.
Unlike Donald Trump’s manufactured crisis and his vanity wall at the Mexico border, severe income inequality and economic greed are true national emergencies. Still, the President plans to ask for $8.6 billion for the wall and a 5% cut across federal agencies — except for defense — in his 2020 fiscal budget. This comes as Trump and the Republicans are waging a war against socialism as a 2020 campaign strategy, which goes against the needs of the millions of Americans who rely on government assistance to help meet their basic needs. And as we were reminded with President Trump’s unnecessarily long government shutdown, that’s the reality of most Americans. We saw how federal workers lined up for food pantries and soup kitchens, and it only highlighted what many already knew, which is that many Americans are only one paycheck away from poverty.
The President likes to tout that his administration is responsible for the nation’s low unemployment rate, but what is the use of a low unemployment rate when people cannot live on the jobs they hold? Forty percent of Americans do not have $400 in case of an emergency expense. Drug and health care costs preclude millions from being able to afford to get sick, and public servants and first responders cannot afford to live in the communities they serve. The United States is one of the least economically mobile of the advanced countries. Of the 50 nations with the lowest rate of upward mobility in the world, only four of them are high-income countries, and America is one of them. The myth of the land of opportunity where people pull themselves up by their bootstraps is just that — a myth. This, in a country where one’s parent’s social status is a strong predictor of one’s occupational success.
Meanwhile, a Stanford study suggests intergenerational mobility is elusive, in which only half of children born in the 1980s can hope to earn more than their parents, down from 90% of those born in the 1940s. The US economic structure is not working out for the average American, including young people, who are steeped in $1.53 trillion in college debt with no jobs, unable to start a family or buy a home, and must take on side gigs to supplement their low-paying fulltime jobs. Forty percent of Americans hold a second job, and half of millennials, as they struggle to pay for increasingly expensive housing and college tuition, also hold a second job. As much as 30% of family’s earnings are set aside to pay for childcare. As many as 44% of people on food stamps have at least one person working in the household, and 23,000 military families rely on food stamps.
Even with all of these facts, Trump filled his cabinet with millionaires and billionaires who are disconnected from the financial hardships of many Americans, such as Treasury Secretary Steven Mnuchin, who failed to disclose $100 million in assets and his role as director of a fund located in a tax haven fund. He said that it was an oversight. Mnuchin also profited from 16,000 foreclosures as a bank executive and spent $800,000 of taxpayers’ money flying military planes on personal trips. And Trump-appointed Alex Azar, who tripled the price of insulin as a pharma executive, is in charge of Health and Human Services.
But instead of recognizing how these ideas could benefit Americans — including his white working class supporters — Republicans have put socialism on trial and returned to the traditional conservative red-baiting of government social programs meant to improve the lives of Americans. The GOP campaign was on display at the recent CPAC conference, where participants decried efforts at restoring liberal democracy, promoting social and economic justice and saving the environment as, according to former Trump advisor Sebastian Gorka, a Stalinist plot to steal your hamburgers. “They want to take your pickup truck! They want to rebuild your home! They want to take away your hamburgers! This is what Stalin dreamt about but never achieved,” Gorka said referring to the Green New Deal.
But the reality is that a new generation of Americans is not swayed by the old labels and divisive tactics. Rather, they ask themselves how they are faring in today’s America, and what kind of country they want to live in. Polls have found that a majority of Democrats are more positive about socialism than capitalism, that a majority of millennials have a negative view of Trump and are positive about socialism — preferring government intervention to improve people’s lives economically rather than depending on the free market to sort things out — while fewer than half embrace capitalism. While some would blast the social democracies of Scandinavia, your chances of achieving the “American dream” are far better in Denmark, Finland, Norway, Sweden and elsewhere in Western Europe, not to mention Canada, Australia and Japan. Of course, income inequality in America did not begin with Trump, but because of his administration’s continued attack on the programs that benefit some of the most vulnerable Americans, it has rightly become a focal point of the fight against him.
Amid all of the outrages of the Trump administration and Congress, the fact that the federal budget deficit has surged by 77 percent above the same period last year somehow got lost. Issues that don’t involve paying off porn stars, debasing law enforcement, conspiring with Russia, white nationalism, internet memes, border walls or Israel are apparently unable to sustain our attention. Which is another way of saying our goose is cooked. The growing red ink in the federal government can, and will, erode the economic advantages the United States has from its entrepreneurial culture and rule of law.
Last week, the Treasury Department reported that the government borrowed $310.3 billion from Oct. 1 to Feb. 28, up from $175.7 billion in the same period a year earlier. The accumulated national debt, including the liabilities of Social Security, is now $22 trillion. That is $67,000 for every man, woman and child in this country. On Monday, the Trump administration proposed a budget that would pile on an additional $4.8 trillion in debt over the next five years. And even these projections are based on continued robust growth. A recession, or even growth rates less than anticipated, would send the deficits higher, sooner. The major causes are the same that responsible people have talked about for decades: unbudgeted, unappropriated and largely out of control spending on benefit programs, primarily heath care, coupled with relatively low rates of taxation. Put simply, voters want more from government than they are willing to pay for, and politicians are giving voters what they want.
Now there is a new twist. Faced with the retirement of the baby boom generation, the Trump administration and Republicans in Congress responded last year with an irresponsible plan to cut taxes by $1.5 trillion over 10 years. Largely as a result, the deficit is expected to jump to $1.1 trillion this year from $779 billion in 2018, despite a healthy economy. The tax cuts not only made matters worse, they also have triggered a kind of arms race in irresponsibility. For the past 30 years Democrats have been more responsible — or perhaps less irresponsible — than Republicans on budgetary matters. The last time the budget was balanced was during the administration of President Bill Clinton. Now some Democrats have given up on trying to fight fire with water and have turned to fighting it with gasoline. In so doing they have internalized the words of former Vice President Dick Cheney, who famously said, “Deficits don’t matter.”
To justify their calls for major increases in health care, education and environmental spending, some progressives are pushing a cockamamie notion called “modern monetary theory,” which holds that deficits don’t matter so long as the government is borrowing in its own currency. Call it the Democratic counterpart to the cockamamie conservative belief in “supply side economics,” the notion that tax cuts will magically pay for themselves. Many Democrats are pushing have-your-cake-and-eat-it-too spending plans that almost perfectly mirror Republicans’ have-your-cake-and-eat-it-too tax cuts. It has apparently become a race for who can show the most bad faith and callous disregard for America’s future economic well-being. This race will not end well.
The latest data from the Bureau of Labor Statistics indicate there are 1 million more job openings in this country than there are available unemployed workers. Part of that gap stems from companies struggling to find trained workers to fill skilled positions — a challenge communicated directly to President Trump by business leaders last week at the inaugural meeting of the White House’s new American Workforce Policy Advisory Board. This skilled workforce challenge is not a new realization for the Trump presidency. To the president’s credit, his administration has promoted, since its inception, the need for more attention to workforce training and technical education. But after over two years into his presidency, we would have expected to see more tangible progress on this front. The appointment of this new workforce policy board is an opportunity to turn that track record around. Most confusing to date has been the repeated call in past Trump budgets for drastic cuts to the very workforce, technical education and human services programs that officials like special advisor Ivanka Trump often praise out in the field. The president likewise called for the expansion of apprenticeship dating back to an executive order issued in June 2017. Yet that effort has been slow to roll out, including a Department of Labor outlay of only a portion of the nearly $300 million that Congress has appropriated for apprenticeship over the past two years. Addressing these public investment issues needs to be a top priority for the Trump administration if it is to achieve its purported workforce goals.
Finally, if we’re going to further encourage employer-led investments in worker training, we need to pay attention to who is currently being left out of that equation. Kudos to the companies that have pledged to the White House their intentions to train nearly 7 million workers to meet changing job requirements. Unfortunately, in an economy in which over 60 percent of existing workers — more than 90 million people — are going to see significant changes to their jobs due to technology, we’re going to need a much more robust government investment. And when 85 percent of employer investments in training are focused on the small number of workers already holding a bachelor’s degree, we need to think about how to diversify that private investment portfolio as well. Proposals like an expansion of the Work Opportunity Tax Credit (WOTC) to prioritize employer-funded training of low-skill, low-wage workers would be a right first step.