But first, let’s consider a nexus of troubling economic trends that seem to be driving and deepening many of the specific problems—and may prove to be the most intractable problem of all. If economic strength means anything, it is that the economy can make almost everyone better off, thereby strengthening the country’s social fabric as well as its balance sheet. Such an economy unites rather than divides us.
Today’s economy, by that standard, is struggling. Its ability to deliver rising living standards across the income spectrum is in decline, and perhaps also in question. “This is a fundamental problem,” says Robert J. Shapiro, the chairman of Sonecom, an economic consultancy in Washington. “This is America’s largest economic challenge. People can no longer depend on rising wages and salaries when the economy expands.”
As other articles in this issue suggest, a number of policy responses are on the agenda already, such as creating jobs, helping more students finish college, and reducing wage-denuding health care inflation. Others, such as reforming the federal disability program, have yet to attract much notice. In truth, however, the extent of Washington’s ability to repair the economy’s gearbox is an open question, because the problem is complex. It implicates not just one slipped gear but many: disruptions in long-established connections between productivity and earnings, between labor and capital, between top earners and everyone else, between men and work, between men and marriage. Together, they are bringing the economy to a place where a large and growing group of people—indeed, whole communities—are isolated from work, marriage, and higher education. That place might look like today’s America, only with a larger welfare state. But it might just as easily bring social unrest and class resentment of a magnitude the country hasn’t known before.
Please read the whole thing. It’s a shock. Note well that the problems Rauch’s piece identifies aren’t those that can be blamed on the Democrats or on the GOP, or that have an easy and obvious policy fix. For example:
Why would workers be receiving a smaller share of output, and why would the share they do receive be skewed toward the top? No one is sure, but Sonecom’s Shapiro tells a plausible story. First, globalization has reduced American companies’ ability to raise prices, and thus to increase their workers’ pay, without losing competitiveness against companies in, say, China and India. Second, a smaller share of the value that companies produce today comes from the physical goods made by people like factory workers, and a larger share comes from ideas and intangible innovations that people like software designers and marketers develop. Between the early 1980s and the mid-2000s, Shapiro says, the share of a big business’s book value accounted for by its physical assets fell by half, from 75 percent to only 36 percent.
“So the basis for value shifts,” Shapiro explains. “This is the full flowering of the idea-based economy.” Which is great if you are a brain worker or an investor; otherwise, not so much.
One implication of that is that men without college degrees are dropping out of the workforce:
In effect, the economy is telling less-educated men: Get lost. And they are doing just that. … Ninety percent of college-educated men are still working. But a fifth of men with only a high school degree weren’t working in 2008, before the recession struck; today, a fourth of them don’t hold a job. Among men who didn’t finish high school, a third aren’t working. As a result of these trends, America today is pockmarked with neighborhoods where nonwork is the male norm.
Men’s withdrawal from work, as the chart shows, isn’t cyclical; it doesn’t recover after downturns. Here, then, is slippage No. 3, arguably the most consequential: the decoupling of less-skilled men from jobs.
If you are out of the workforce, economic growth can’t reach you, at least not directly. You might live off a girlfriend, receive welfare or disability payments, or dip in and out of the underground economy. But the performance of the economy as a whole becomes largely irrelevant. “A lot of these people will never work again,” said Looney at Brookings. “Less-skilled workers are falling so far behind that they are going to place a huge strain on the social safety net in the coming decades.
And that has effects on the ability to form stable families (I would point out too that the 1960s and 1970s revolution in sexual and social relations exacerbates this problem). Again, read the whole thing.
It is good to know that the Republican Party’s emerging leadership class is full of innovative ideas for how to address this challenge.