All Things in Moderation

I read this piece this morning and thought it had quite a few interesting points to make.  Since I began blogging about three years ago (I know, I was a little slow) one of the things I’ve been harping on is the reversal of fortune or stagnation of the middle class.  I think a lot of it has to do with the high cost of health care, which this piece doesn’t explore, but I’ve also blamed our free trade policies which have created a large trade deficit, out sourcing jobs with no consequences for the out sourcers, lack of quality investment in education and being stuck in a couple of wars and fossil fuel reliance.  I don’t believe either party has done a very good job in the last several decades of addressing issues that would encourage or train our people for the 21st. Century.  We’ll give them a little in the way of a safety net, which is always at risk, when what people really want are jobs and a decent life to pass on to their children.  I understand that our first commitment at the Federal level is National Security and we could probably get rid of some Federal agencies and combine others but in the meantime our leaders have shirked their duty, a strong word I know, in providing opportunity to our citizens.  That’s my opinion anyway.  Think how much money we’d save if people didn’t need to rely on the safety net so thoroughly or how much more tax revenue we’d have at current levels of taxation if more people had decent paying jobs.  Most of the innovation of the last couple of decades has come from the financial industry, which just seems weird to me, not that we don’t need financial services but the balance has skewed too far away from industry and innovation, again, in my opinion.  Here are several excerpts from this rather long piece.

In recent months, Federal Reserve Board Chairman Ben Bernanke and President Obama have sounded increasingly urgent alarms about the staggering number of long-term unemployed. And they are right to do so: 42.4 percent of the nation’s 13.9 million unemployed workers have been out of a job for more than six months. That’s by far the highest share of long-term unemployed since the government started keeping records a half-century ago.

What Bernanke and others rarely mention, though, is that this trend has been building for at least three decades. The share of left-behinds has generally ratcheted up with every economic downturn since the early 1980s. And today, even two years after the Great Recession technically ended in June 2009, the number of long-term jobless has continued to climb to record levels. It shot up from 29.3 percent of total unemployed workers in June 2009 and peaked at 44.6 percent as recently as September.

Washington, dominated by a free-market consensus ever since President Reagan’s era, has ignored that 30-year pattern. Partly as a result, reams of data show that America’s middle class has been shrinking. Among the few who has long second-guessed the Washington mind-set is Frank Levy, an economist at the Massachusetts Institute of Technology who coauthored a much-cited 2007 paper concluding that labor began losing the fight to capital in the late 1970s.

“I’m not sure how much better we could have done in preserving the middle class,” he says. “But I know that, with a few exceptions like the earned income tax credit, we didn’t really try.”

There can be little question that the middle class, or what’s left of it, is less and less able to cope. Adjusted for inflation, average hourly wages declined by 1 percent from 1970 to 2009. Meanwhile, home prices increased 97 percent, gas prices went up 18 percent, health costs rose 50 percent, and the price tag for public college spiked a whopping 80 percent after adjusting both wages and costs for inflation, according to figures compiled by the Senate Health, Education, Labor, and Pensions Committee. The average family of four needs an annual income of $68,000 just to cover basic costs, but in 2010, half of all jobs paid less than $33,840. The number of Americans living below the poverty line—46.2 million—is the highest in the 52 years that the Census Bureau has been tallying figures.


The bleak numbers raise obvious questions about the dominant economic paradigm of our time. For more than a generation, we have thought of the spread of free markets and globalization were pretty much inevitable. Economists, trade experts, and policymakers, including both Republican and Democratic presidents, have told us, in effect, that we could do little about the brutal displacement of old industries and jobs, and that we might as well just get used to it. Indeed, we were told, the U.S. must lead this charge: Free trade in the West helped to win the Cold War, after all, and the United States emerged as the sole superpower. It created to a strange blend of false fatalism and American hubris. Somehow, the champions of hands-off economic policy insisted, we would come out on top in the end.

It may not be an accident that the growth of long-term unemployment, starting in the 1980s, coincided with what MIT’s Levy calls the end of the “Treaty of Detroit”—a consensus that supported high minimum wages, progressive taxes, and other New Deal policies. Scott agrees. “Looking at wage trends, they all shift dramatically for the worse since then. The peak was really 1979. That’s the point at which three trends came together: the process of globalization, de-unionization, and deregulation. The fundamental guiding philosophy was, ‘markets know best.’ ”
Today, as a result, a deeper sense of alienation haunts American society than anyone can remember. “The sense that were all in this together as one nation, a common society and a common policy, has been disrupted by globalization,” Rodrik says. “Now, there is a greater realization that the benefits of globalization accrued disproportionately to the professional classes, the higher skilled, the ones who had the mobility and access to capital.” “And what strikes me is how unperturbed and unaffected and apparently insulated the winners have been in this whole process…. The costs are heavily concentrated among the youth, the high school dropouts, those with little education, the blacks in the urban areas. The rest of us effectively have been insulated.”

The solution for the United States may be a smarter combination of more-intensive training and education programs that turn industry and academia into partners, and a savvier policy of subsidizing crucial industries. Whatever the budget constraints, American workers need a lot more money for education and training. Total federal spending for job training adds up to a mere $15 billion annually, or one-tenth of 1 percent of gross domestic product, far less than any other major country. It may be too late for today’s displaced workers. But the children and grandchildren of displaced workers mired in these lost communities need to know that jobs exist for those willing to leave home and get trained and that education does not require on ruinous debts.

Nor should industrial policy be about the government “picking winners,” as the debacle over Solyndra, the bankrupt solar-panel company, made clear. Instead, the government can more subtly prod strategic industries along by, say, taxing fossil fuels to encourage investment in green technologies. For anything like such a comprehensive change to happen, of course, politicians in Washington will have to agree on the nature of the malady they helped to create over the past 30 years. And there is little sign of that happening yet.

Filed under: education, free markets, innovation | Tagged: NAFTA | 14 Comments »