Every so often, you read some stuff, see some connections and get a post that just writes itself. I’ve said in the past that one of the most serious issues we face (and are primarily ignoring) these days is what Neil Stephenson summarized so pithily:
Once the Invisible Hand has taken all the historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y’know what? There’s only four things we do better than anyone else: music, movies, microcode (software), and high-speed pizza delivery.
We face an outgoing tide, in which the prosperity which had once been concentrated here, and shared widely between the classes of capital and labor, is going out. Owners of capital can invest abroad, and can, if they are clever and lucky improve their situation. Owners of labor find themselves in increasingly direct competition with lower-cost labor abroad, or with less-skilled labor which can compete because machines and systems make their skills redundant.
Start here (note, intrusive registration required, use ‘laexaminer’/’laexaminer’), with an article in this morning’s L.A. Times about WalMart:
The Wal-Mart Supercenter, a pink stucco box twice as big as a Home Depot, combines a full-scale supermarket with the usual discount mega-store. For the 26-year-old Ferguson, the draw is simple.
“You can’t beat the prices,” said the hotel cashier, who makes $400 a week. “I come here because it’s cheap.”
Across town, another mother also is familiar with the Supercenter’s low prices. Kelly Gray, the chief breadwinner for five children, lost her job as a Raley’s grocery clerk last December after Wal-Mart expanded into the supermarket business here. California-based Raley’s closed all 18 of its stores in the area, laying off 1,400 workers.
Gray earned $14.68 an hour with a pension and family health insurance. Wal-Mart grocery workers typically make less than $9 an hour.
Here’s the key question: Would you rather that these 70,000 middle class jobs become poverty level jobs filled by workers who have to turn to the taxpayer for healthcare and food stamps? That’s what the companies are proposing because that’s what Wal-Mart has. The CEOs of these three companies are just trying to keep up with the Waltons. Their combined operating profits have gone up 91% in the past five years…but Wal-Mart’s have gone up even more. Good lord — when is enough enough? At what price profits???
It’s not just about grocery clerks. In another LA Times story today, we’ve got this:
BURLINGTON, Iowa — America used to need this town tucked into a crook of the Mississippi River.
The assembly lines in Burlington and other factory towns nearby built the products that kept the nation moving — school buses, car batteries, backhoes, tractor-trailers. Workers put in 60- and 70-hour weeks to meet demand.
The backhoes are produced in Mexico now, the batteries in Canada. Men and women who once defined themselves by what they built now support their families with unemployment checks.
“There’s not a market anymore for a guy who shows up for work and does his job well,” said Devan Rhum, 37, a former factory worker. “All of a sudden, we’ve got our hands out. It’s degrading.”
What’s it about? The Times story on Wal Mart says:
“We have split brains,” said Robert Reich, U.S. secretary of Labor under President Clinton and now a professor of economic and social policy at Brandeis University in Waltham, Mass. “Most of the time, the half of our brain that wants the best deal prevails.”
The connection may be lost on many, Reich said, but consumers’ addiction to low prices is accelerating a shift toward a two-tiered U.S. economy, with a shrinking middle class and a growing pool of low-wage workers.
“Wal-Mart’s prices may be lower,” he said, “but that’s small consolation to a lot of people who end up with less money to spend.”
Others insist there is a net benefit whenever consumers can get more for less. “If you have lower real prices, you’re saving money,” said Arthur Laffer, a key advisor to President Reagan who is now an economic consultant in San Diego. “The prices’ falling, in effect, raises the wages of everyone who buys their products.”
Yes, but…that works well for the first few companies; the companies make more money, and lowering the price of goods improves the overall standard of living while only impacting a few workers. But there is a tipping point, where suddenly the number of workers who have gone from the middle-class downward begin to impact the overall economy – and we’re not better off then. Calpundit says it well when he says:
So which is the better and more sustainable model? Increasing the overall affordability of goods by creating a larger class of people who can afford them? Or increasing the overall affordability of goods by squeezing the blue collar workers who make them and thus lowering prices?
Both models work, but one works by building up the working class and the other works by tearing it down. I’ll take Door #1.
Along those lines, this week’s Business Week has a great article (subscribers only) on the decline of economic mobility. Because it’s protected, I’ll quote pretty extensively. (By the way, Business Week has taken over from Forbes as my favorite iconoclastic business magazine, and I’d encourage people to subscribe.)
The result has been an erosion of one of America’s most cherished values: giving its people the ability to move up the economic ladder over their lifetimes. Historically, most Americans, even low-skilled ones, were able to find poorly paid janitorial or factory jobs, then gradually climb into the middle class as they gained experience and moved up the wage curve. But the number of workers progressing upward began to slip in the 1970s, when the post-World War II productivity boom ran out of steam. Upward mobility diminished even more in the 1980s as globalization and technology slammed blue-collar wages.
MANY EXPERTS expected the trend to reverse as productivity rebounded during the heated economy of the 1990s. Certainly, there were plenty of gains. The long decline in pay rates turned around as supertight labor markets raised the wages of almost everyone. College enrollment boomed, too, and home ownership shot up, extending the American dream to more families. Low interest rates and higher wages allowed even those on the bottom to benefit. There was even a slight decline in the ranks of the very poorest families, as measured by asset wealth — those with a net worth of less than $5,000 — according to a study by New York University economics professor Edward N. Wolff.
But new research suggests that, surprisingly, the best economy in 30 years did little to get America’s vaunted upward mobility back on track. The new studies, which follow individuals and families over many years, paint a paradoxical picture: Even as the U.S. economy was bursting with wealth in the 1990s, minting dot-com millionaires by the thousands, conventional companies were cutting the middle out of career ladders, leaving fewer people able to better their economic position over the decade.
During the 1990s, relative mobility — that is, the share of Americans changing income quintiles in any direction, up or down — slipped by two percentage points, to 62%, according to an analysis of decade-long income trends through 2001 by Jonathan D. Fisher and David S. Johnson, two economists at the Bureau of Labor Statistics. While two points may not sound like much, it’s bad news given how much progress might have been made amid explosive growth. Essentially, says University of Chicago economics professor and Nobel laureate James J. Heckman, “the big finding in recent years is that the notion of America being a highly mobile society isn’t as true as it used to be.”
In fact, according to a study by two Federal Reserve Bank of Boston economists that analyzed families’ incomes over three decades, the number of people who stayed stuck in the same income bracket — be it at the bottom or at the top — over the course of a decade actually increased in the 1990s. So, though the boom lifted pay rates for janitors and clerks by as much as 5% to 10% in the late 1990s, more of them remained janitors or clerks; fewer worked their way into better-paying positions. Imelda Roman, for one, makes about $30,000 a year as a counselor at a Milwaukee nonprofit — barely more than the $27,000 or so, after inflation adjustments, that the 33-year-old single mom earned as a school-bus driver more than 10 years ago. Says Roman, who hopes to return to college to improve her prospects: “It’s hard to find a job with a career ladder these days, and a B.A. would be an edge.”
What Roman faces is an economy that is slowly stratifying along class lines. Today, upward mobility is determined increasingly by a college degree that’s attainable mostly by those whose parents already have money or education. “It’s clear that unless you go to college, you can’t achieve a high trajectory in life. Education is the key to success in America today,” says Aramark Corp. CEO Joseph Neubauer. He gives scholarship money to hundreds of disadvantaged kids every year through the Horatio Alger Assn., a group of successful Americans who try to help others make it, too.
In turn, the lack of mobility for those who don’t or can’t get a degree is putting a lid on the intergenerational progress that has long been a mainstay of the American experience. Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found. By contrast, 23% of lower-class sons had done so by 1973, according to the earlier study. Similarly, only 51% of sons whose fathers belonged to the second-highest quarter equaled or surpassed the economic standing of their parents in the 1990s. In the 1960s, 63% did.
That’s the pattern Michael A. McLimans and his family follows. Now 33, with two young children, the New Holland (Pa.) resident has spent the past decade working at pizza chains such as Domino’s and Pizza Hut (YUM ). He made it to assistant manager but found that he could earn more, $9 to $12 an hour with tips, as a delivery driver. He and his wife, a hotel receptionist, pull down about $40,000 a year — far from the $60,000 Michael’s father, David I. McLimans, earns as a veteran steelworker. “I save every dime I can so my kids can go to college, which neither of us can afford to do,” says Michael.
This matters a lot. Social and economic mobility is the key to American success, politically, economically, and socially.
Midway through my much-aided private college education, the Reagan administration started making Academe a gated community. The results were apparent by the time I graduated, but I always figured, well, at least the state university systems are available.
Talking to younger folks, though, I’ve hit plenty of anecdotal evidence that even state universities are now available only to those lower-class compeers who are willing to assume crippling — I mean, legs-chainsawed-off crippling — debt while simultaneously working like a dog and trying to study full-time. And reports like “Losing Ground” and “Unequal Opportunity” provide the stats: college has become an impossible choice for many Americans, no matter how many sacrifices they’re willing to make.
In response, I said:
Social mobility. It is the magic glue that holds us together; it is the sense of possibility that each of us holds in our hearts, if not for ourselves, than for our children.
And one of the consequences of SkyBox Liberalism is not only the ossification of class…you in your courtside chair, Mr. Nicholson, and then the neat hierarchy of wealth and fame leading upward to the corporate SkyBoxes that make this all possible, and above them, the proles in the nosebleed seats, kept in their place by the minimum-wage guards who keep everyone in their appropriate section…but the obvious “flaunt it, baby” statement of your gracious wave to the fans sitting in the rafters.
Why should you care? You should care for a lot of reasons.
First, because the dynamic of Creative Destruction that keeps our economy strong is dying, replaced by Adam Bellow’s genteel world of nepotism and privilege. That’s not a good thing. Our economy is stronger than that of Europe and Japan because outsiders with energy and ideas can still build companies; that’s harder to do in an economically and socially stratified environment.
But most importantly, because it erodes the connections that tie us together as Americans.
The other [justification for managing the increasing concentration of wealth and power] is very practical and cold-hearted, and is something I hope to convince you to take seriously; to have the kind of political organization we have…where we grant legitimacy to an abstract body of laws and procedure…there needs to be a rough equality of power.
There will never be a true equality of power; every effort to make it so has collapsed into madness (The Terror, Pol Pot). But one unique feature of the American system – and one of the keys to it’s greatness is the ability of the small to stand up to the strong. This is important for many reasons; one of the most important is that it ties the small and powerless to the system with ties of legitimacy.
When I try and bring up these issues. I’m sometimes accused of trying to post-facto, justify the New Deal and Great Society and all of the baggage that came with them. I think that those who make those accusations operate from the mistaken assumption that the generalized prosperity and unity that we enjoyed from the 50’s to the 70’s was somehow a norm, and that we should take that as a baseline. It wasn’t, and we shouldn’t.
The New Deal was (rightly or not) conceived as a way to ameliorate conditions for the poor enough to stave off a possible socialist revolution (or a national socialist one…), and the Great Society was developed in response to Harrington’s “Other America” of malnourished kids.
We face new challenges today, and we need to try and imagine and build responses to them; some of those may look like large government programs and some may not. But we have to somehow face these challenges, or we’ll all wind up living in Neil Stephenson’s book.
JK Udate: This is funny – the next logical step in offshore outsourcing?