What ever Happened to “We” the People?

I am writing a post today as an outcropping of my professional pursuits, my status in life, and about the person I love who is mired deep in the kind of long term, blue-collar unemployment that didn’t used to exist in this country. I am underemployed at the moment because I don’t want to jump out of my sustainable life here to something that is risky and might not work out for me at my stage in life. I am trying to set up my end game and feel like I really can’t afford the risk of moving someplace for a job that may or may not pan out or some place where I basically suffer to exist.  I am in a state of perpetual hunker down because of this. It is stressful and eating into my investments which I am fortunate to have but are not inexhaustible. I will not talk about my friend’s situation because, of course, it is personal. But, I will say watching some one so beautiful struggle with self worth issues because this economy only works for a few and because our government persistently sticks to such an untrue narrative about our economy just keeps me on the edge of tears.  I am not an overly emotional person at all.  Living in the USA should not mean living in a state of risk avoidance, depression, poor shaming and poverty creation.

There are many things that I grew up with and assumed would be there when I grew up that I despair frequently at their loss and threatened existence. My kids,as you know, are doing fine. My father got his degrees on the GI Bill and saw to it that my sister and I were educated. As a result, my girls and I never even considered not going to university. Doctor Daughter is now a full-fledged OB-GYN in the process of getting board certified in Washington State where she will undoubtedly become very rich very quickly with her soon-to-be radiologist husband. Youngest daughter just took her GMAT and is headed for her MBA in the fall. She and her boyfriend of three years have very good jobs and make great money. But the deal is, that was the path set before us because our families can now chose further upward mobility through higher education and jobs in the right sectors.  We are all there. For my son-in-law, it is because his parents had access to immigration to the US and US public universities. For us, it was because my father who comes from a railroad worker and Oklahoma/Kansas dirt farmers could go to university.  That happened because my granddad had a great blue collar job that began with digging ditches for the Atchison, Topeka, and the Santa Fe and my dad’s access to the GI bill.  The real success stories of last century come from the many of us who got access to what we did because “we” the people invested in ourselves and each other. We also decided to jointly insure ourselves against personal and community disasters.  All of these accomplishments are under direct assault today and we are failing ourselves and each other in many ways.

There used to be an alternative path through good, stable, well-paying jobs that took training, skill, hard work and experience.  Original socioeconomic status wasn’t all that relevant.  That path has dried up.   The heart wrenching stories told in this NYT article about the crumbling city of Port Clinton, Ohio are typical of many midwestern, formally thriving industrial cities. The article contrasts the life of the author’s grandchildren and those of his blue collar classmates who went to school in the small town.  This narrative is one played out all over the country.  The conclusion is compelling.

The contrast with the egalitarian ethos and reality of the 1950s — the contrast between the upward mobility experienced by J and the bleak prospects of R — vividly captures Port Clinton’s transformation in the last half-century, much like that of the rest of the country. My research team has talked with dozens of R’s from Austin, Tex., to Duluth, Minn., and from Atlanta to Orange County, Calif.

The crumbling of the American dream is a purple problem, obscured by solely red or solely blue lenses. Its economic and cultural roots are entangled, a mixture of government, private sector, community and personal failings. But the deepest root is our radically shriveled sense of
“we.” Everyone in my parents’ generation thought of J as one of “our kids,” but surprisingly few adults in Port Clinton today are even aware of R’s existence, and even fewer would likely think of her as “our kid.” Until we treat the millions of R’s across America as our own kids, we will pay a major economic price, and talk of the American dream will increasingly seem cynical historical fiction.

Yes. We have a “radically shriveled sense of we” these days and it is killing the economy for all but a few of us.  It is fueling racial resentment.  It is even leading to a zero sum game for the folks reaping the benefits right now even though they adamantly refuse to see that future. Much of the problem is because  The Pay is too Damn Low.  More and more of productivity gains and corporate income gains are going to a small number of passive investors and not to the people involved in producing the gains.  It is upending classical labor theory and actually invigorating the old ideas of Karl Marx as I have written before.  Please remember, I am not a Marxist but I and others see the coming fruition of many of his philosophical points on how capitalism would eventually self-destruct.   The New Deal did not bring about  radical change.  It brought about upward mobility and societal safety nets so we did not get radical change. Nothing fuels revolution like national despair.

The workers’ grievances are simple: low wages, few (if any) benefits, and little full-time work. In inflation-adjusted terms, the minimum wage, though higher than it was a decade ago, is still well below its 1968 peak (when it was worth about $10.70 an hour in today’s dollars), and it’s still poverty-level pay. To make matters worse, most fast-food and retail work is part time, and the weak job market has eroded what little bargaining power low-wage workers had: their earnings actually fell between 2009 and last year, according to the National Employment Law Project.

Still, the reason this has become a big political issue is not that the jobs have changed; it’s that the people doing the jobs have. Historically, low-wage work tended to be done either by the young or by women looking for part-time jobs to supplement family income. As the historian Bethany Moreton has shown, Walmart in its early days sought explicitly to hire underemployed married women. Fast-food workforces, meanwhile, were dominated by teen-agers. Now, though, plenty of family breadwinners are stuck in these jobs. That’s because, over the past three decades, the U.S. economy has done a poor job of creating good middle-class jobs; five of the six fastest-growing job categories today pay less than the median wage. That’s why, as a recent study by the economists John Schmitt and Janelle Jones has shown, low-wage workers are older and better educated than ever. More important, more of them are relying on their paychecks not for pin money or to pay for Friday-night dates but, rather, to support families. Forty years ago, there was no expectation that fast-food or discount-retail jobs would provide a living wage, because these were not jobs that, in the main, adult heads of household did. Today, low-wage workers provide forty-six per cent of their family’s income. It is that change which is driving the demand for higher pay.

The situation is the result of a tectonic shift in the American economy. In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying. It had high profit margins and real pricing power, even as it was paying its workers union wages. And it was not alone: firms like Ford, Standard Oil, and Bethlehem Steel employed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains, almost all of which have built their businesses on low pay—they’ve striven to keep wages down and unions out—and low prices.

The deal is that big businesses are making record level profits and the record-setting levels of the DJ industrial average show that we are not failing the largest businesses and the richest people in the country.  They do not need to be exempt from more taxation or responsibility from the moral hazard and the social costs they inflict on society.  The benefits of their existence do not trickle down on us.  What trickles down is their costs to society like those of the last financial crisis and that of oil spills, chemical company fires, and toxin produced illnesses.  A strong economy comes from jobs and middle income prosperity and spending.  Many private sector jobs are so bad they no longer do anything but sustain people in intense suffering.

One of the big reasons the U.S. economy is so lousy is the American companies are hoarding cash and “maximizing profits” instead of investing in their people and future projects.

This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth–the vast American middle class–of purchasing power. (See charts below).

If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services to average Americans can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to accelerate revenue growth.

One obvious solution to this problem is to encourage companies to pay their people more — to share more of the vast wealth that they create with the people who create it.

The companies have record profit margins, so they can certainly afford to do this.

But, unfortunately, over the past three decades, what began as a healthy and necessary effort to make our companies more efficient after the malaise of the 1970s has evolved into a warped consensus that the only value that companies should create is financial value (cash) and that the only thing managers and owners should ever worry about it making more of it.

This view is an insult to anyone who has ever dreamed of having a job that is about more than money.

People take risks when they feel they have adequate safety nets to do so.  We are ripping apart the nets that let people try new things and move to do things.  We are losing opportunities to educate and advance our society and our people.

As Jared Bernstein, an economist at the Center for Budget and Policy Priorities, told me, “The best friend that low-wage workers have is a strong economy and a tight job market.” It isn’t enough to make bad jobs better. We need to create better jobs.

That simple statement and the politics of right now have led Robert Reich to suggest that some policy makers actually want high unemployment to suppress wages and keep the profits trickling up to big investors.   All the while, these same politicians fuel racial resentment.  They tell formerly well-off white blue collar workers that it is immigration and and reverse racism in civil rights legislation that has hurt their livelihoods.  Meanwhile, the media keeps up the false narrative that it’s the defict, it’s social security, and it’s medicare that is hurting us.  Putting money into the group of people most likely to spend it is the way to drive the American Economy.  We economists have known that for years.  Hoarding money at the top and refusing to use the governments power to tax and spend is bad economic policy. Our fiscal policy is killing the American Dream instead of driving it.

There are other examples besides our labor market.  Health insurance is just one more market where “we” the people can do right by each other and can actually improve outcomes.  I want to point you to the irascible Andrew Sullivan who uses Hayek–the economic god of the libertarian cult–to explain why social insurance –like Social Security and Medicare–actually stops freeloading off the economy rather than encouraging it.  In this situation, he explains why Obamacare actually forces us to take personal responsibility.  It is a argument from a different perspective on why “we” the people have to act on economic principals to preserve our society and way of life.  In this essay, he criticizes the right wing radical group Freedomworks.  The groupis trying to get 20somethings to burn their Obamacare cards which is in itself pretty crazy because the cards are nonexistent.  Actually, what this does is wreck the risk pool for all of us.  But, here is an argument for the leverage of government on a market that has failed so many people from another vantage point.

It is not being independent; it’s being potentially dependent on others while giving nothing in return. And insurance is an inherently collective endeavor. That’s how it works. It’s one area where going it alone makes very little sense. And, of course, the bigger the insurance pool, the lower the premiums. This is not socialism. It’s a simple insurance principle, used by free countries for centuries. It certainly passed muster with Friedrich Hayek, a man you would think would be an influence on the Tea Party’s political program. I’ve cited this before but it’s worth citing again:

Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong … Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.

That’s from The Road To Serfdom, one book of the libertarian and conservative Bible. And it’s common sense. It’s leveraging a simple principle – pooling risk – and extending it as far as possible to guard against the “common hazards of life.” There is nothing leftist or socialist about it. And it demands that each of us be personally responsible for the costs our own encounters with illness or accident impose upon our neighbors, rich and poor, young and old. If FreedomWorks were consistent, it would encourage twentysomethings to “burn their Obamacare card” while simultaneously pledging never to seek medical care under any circumstances. That would be coherent, if bonkers. What’s incoherent is claiming that refusing to contribute to a system you nonetheless intend to use is anything but a scam.

In fact, what FreedomWorks is encouraging is the real socialism. It’s using the 1986 law to force hard-working Americans to pay for free-loaders’ care.

The deal is that when labor markets or social insurance markets or health insurance markets fail a group of us, they fail and cost all of us one way or another.  The cost us through increased crime, mental health issues, drug and alcohol abuse, family instability.  People losing homes costs us.  When houses go on the market at fire sale prices, it drags down the home prices of every one in the neighborhood.  When wages are low, people don’t spend money at the the local businesses who cannot afford to hire more people or order inventory.  Children raised with poor educational opportunities in crime ridden areas most likely become problems that cost us dearly in our incarceration nation.  We fully know that there are places where the government can act and change the momentum. Yet,  our government fails us.  The government of  “we” the people is not using the known and available tools to correct things.  It is, in fact, actively undermining economic health.  Economists known that deficit reduction is impeding the economy yet that is not the conventional wisdom floating around the beltway. Pundits and Policy makers are either being deliberately ignorant or lying.

Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve.

“Fiscal tightening is hurting,” Ian Shepherdson, chief economist of Pantheon Macroeconomic Advisors, wrote to clients recently. The investment bank Jefferies wrote of “ongoing fiscal mismanagement” in its midyear report on Tuesday, and noted that while the recovery and expansion would be four years old next month, reduced government spending “has detracted from growth in five of past seven quarters.”

We know that insurance is by definition a collective effort because of its pooling of risk.  Its goal is risk mitigation and therefore, cost reduction.  Yet, here we go down the path of bringing down the government for an effort to reign in the dysfunctional health insurance industry.  Not only are some policymakers willing to blow up our social insurance programs, they are doing so at the high risk of blowing up the entire economy when so many folks are still suffering from the last blowup and their inability to do something to stop the suffering.   This kind’ve foolishness really needs to come to an end.  There is nothing to be gained by any of us for this type of incessant nonsense.   Many policymakers and their pundit enablers are putting themselves and their friends’ interests above that of the country’s and that of “we” the people.  It is hurting many of us including a huge number of children whose lives look pretty bleak at the moment.  Spend some time reading the narratives of folks in that top story that these guys poor-shame daily and then think of the possible programs that would actually put the cost of market failure back on the companies and people that caused it to start out with.  It would also put people back to work. Then, start to wonder if our country can ever look like it did when it was truly the land of opportunity instead of the land of “we” the few, powerful, and rich.  It is a very American ideal to think we could have a country where every one can find a well-paying job and join together to pay to insure against and provide for the risk of disasters.