Lies, Damned Lies, And Economics

Ever since the Great Recession it’s been hard to ignore populist issues that have managed to inflame the Tea Party on the Right and Occupy Wall Street on the Left. They concern changes to the economy that threaten the so-called American Dream.

It used to be gospel that if you worked hard you’d be able to afford a good life. If you got more education you’d get ahead. Politicians still spout these verities, but they are no longer true. A blue-collar assembly line guy in the 1950s could buy a house, mom could raise the kids, they could go further in affordable schools than their parents had and climb another rung on the economic ladder.

All gone. A few seem to get ahead, way ahead. More and more seem to be slipping backwards or treading water. Many two worker families can barely keep afloat. Many young folks can’t afford to leave home, get married, get on with it.

The political discussion has barely addressed what to do about this change in our fortunes. Instead it has engaged in reflexive finger pointing. The left blames big banks, big business, union busting, globalization and a political system rigged to help big donors at the expense of works. The right blames government regulation, bailouts, the welfare state, the loss of family values and The Other – blacks, immigrants, the feckless young, the greedy old. The usual scapegoats all around.

I have recently learned a useful word for this behavior – die lebensluge, the lie that makes life bearable. But there may be a glimmer of hope in the fact that light is being shed on our real situation, studies that quantify what everybody knows but doesn’t want to believe.

The economist of the moment is Thomas Piketty, a French professor who has patiently specialized for years in inequality. His “Capital in the 21st Century” is a number one bestseller that has sold out because Harvard’s Belknap Press, unused to robust demand for its scholarly publications, didn’t print enough. The book suggests growing inequality is real, that it is a byproduct of modern capitalism and that it is at its worst in the United States which does less to ameliorate its effects than other advanced economies. Steps like funding quality education and healthcare for all by taxiing the wealthy.

Worse news, his data shows that the golden age we all want to return to – 1945 to 1975 – was an aberration due to never-to-be-repeated factors. We have reverted to the mean and it is unattractive. He also indicts the economics profession, left and right, for dressing up political wishful thinking in charts and jargon without hard data to back up their views.

Needless to say, these views have gotten Piketty pilloried as a frog-eating socialist, but the facts refuse to go away. One glaring fact is that wealth, once amassed, tends to keep growing without hard work or merit on the part of its owners (Paris Hilton, the Wal-Mart heirs) while hard working people get less and less of the pie. A kind of sans culottes vs. aristocrats divide is the result.

William A. Galston, a tame moderate who leavens the right wing op-ed pages of the Wall Street Journal, had a sobering piece recently (Apr. 30) detailing some of the post-recession bad news. Or in Piketty’s view what will become the new normal status quo.

Housing isn’t recovering because new households are forming at only 40% of the usual rate since World War II. Why? Young adults are either unemployed or underemployed. Forty percent of recent college graduates are in jobs that don’t require a college degree and over 20 percent more are working part time.

A huge shift is taking place in the work force and has been since long before the recession, though it hastened the decline. A lot of high-wage jobs vanished in the recession, 41 percent of all jobs fit that description, but only 30 percent of the jobs created since are well-paid. At the other end of the spectrum, the situation is reversed. Twenty-two percent of jobs that were lost were low wage, but 44 percent of those created are. We are sliding into an economy where few are rich, more and more are poorer and the middle class is shrinking.

Since the engine of our economic growth is consumer demand, this bodes very ill. Consumers can’t spend without income. The causes aren’t those favored by people at the political extremes – cartoon capitalists or crypto-commissars. Rather they are structural changes that have been taking place since the 1970s.

Galston makes the particularly damaging point that the tech boom that was supposed to create high wage jobs is actually creating less jobs of all sorts since the machines are performing more and more jobs people once did. And he quotes an exchange that should be more famous.

Way back in the 1950s a Ford exec showed UAW chief Walter Reuther around a newly automated plant and asked who would pay union dues if the machines did all the work. To which Reuther replied, who will buy the Fords?

We may be nearing a point of no return. There are things that could be done to deal intelligently with this new reality, but first it has to be acknowledged in preference to the comforting fictions that politicians like to feed us with the connivance of their pet economists. Up to now employees, consumers and voters have been content to accept the conventional wisdom which may actually have been fantasy. Maybe there is a growing appetite for eating the spinach of hard truths.

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