Buddha admonished his followers to minimize earthly possessions. How then, one wonders, would he react to the July 21 New York Times report that Target stores offer “no fewer than 10 Buddha items for sale,” including one in which the great sage apparently bears an unmistakable resemblance to Homer Simpson?
We are not, alas,a nation of Buddhists. We are a nation of consumers, and we arebecoming more so. It has always been a mantra among economists thatconsumption represents two thirds of the economy. But that statisticis out of date. It has been climbing since the early 1980s and is nowcloser to 70 percent. That is why, when faced with the mostdevastating attack on our homeland in our history, ourcommander-in-chief did not emphasize shared sacrifice. He told usto get out to the malls and “down to Disney World.”
Do weover-consume? I find Warren and Tyagi’s arguments convincing. Asthey emphasize, most of the big-ticket items bought by middle-incomefamilies are necessities such as housing, health care, and childcare. But I come not simply to agree with Warren and Tyagi, but to gofurther than they do to understand what is behind the middle-classsqueeze that they so ably document. For example, they note that overthe past generation “family income rose not because men are, onaverage, making more money (they are not) but because millions ofmothers decided to enter the work force.” Given this reality,isn’t a central explanation for the middle-class squeeze male wagestagnation?
Of course it is, and any set of solutions needs to dealwith this growing disparity between economic growth and the livingstandards of middle-income families. Examining productivity growth inrelation to the real income of the median family reveals aparticularly dramatic picture of this divergence. Since productivityis, by definition, output per hour, an increase in productivityindicates that the U.S. work force is able to create more income perhour of work. Thus, another common mantra among economists assertsthat productivity is the main determinant of livingstandards.
However, there is no guarantee that this added incomewill reach middle-income families, especially in periods of highunemployment and rising inequality. Between 1947 and 1973—a goldenage of growth for both variables—productivity and real medianfamily income more than doubled, each growing by precisely the sameamount. Throughout this era, one that stands out starkly fromtoday’s in Warren and Tyagi’s analysis, the nation’sproductivity growth was broadly shared, and the median family reapedthe benefits of the expanding economy. Starting in the mid-1970s,however, this virtuous relationship broke down.
From 1973 to 2003,median family income grew at less than one third of the rate ofproductivity. Relative to the earlier years, this was a period ofgrowing income inequality, which served as a wedge betweenproductivity and the living standards of the median family. Otherfactors were at play as well, including changes in family size andtype, but the main factor was the wedge of inequality. While fasterproductivity growth led to a larger economic pie, growing inequalitymeant that the slices were divided such that some incomeclasses—particularly those at the top of the income scale—claimedmost of the income growth.
These conditions have certainly beenevident in the current business cycle as well, as productivity greweach year from 2000 to 2003, increasing by a total of 12 percent.Meanwhile, real median family income fell each of these years,declining by an overall three percent. By 2003, the gap betweenproductivity growth and median family income had become the largeston record.
These developments—increased economic inequality andthe gap between productivity and earnings—are most responsible forthe problems that Warren and Tyagi document. The resources exist toavoid many of these problems; the issue is really about distribution.But first, let me stress the importance of a theme that Warren andTyagi raise in their discussion of the ideology behind theover-consumption myth: the politics of personalresponsibility.
Almost every recent conservative initiative—notjust the bankruptcy law—has been invoked under this banner. Taxcuts were sold under the pretence that the budget surplus (whichturned out to be a mirage) was “your money.” No vision of thecommon good here, no consideration of how we might pool our resourcesto meet the housing, education, and health-care challenges facing thepoor and middle-class; just give the surplus back to taxpayers andlet them fight it out on their own. It’s the same idea with SocialSecurity privatization and health-care reform.
We simply can’tmeet the challenges of an increasingly global and technologicallyadvanced economy this way. The risks—individual andcollective—are too great. We are a country rich and productiveenough that no one should be exposed to undue hardship because theyget sick or divorced, or because ill fate befalls them that is nottheir fault. Our public-education system is not an across-the-boarddisaster; there are public schools to which we’d be happy to sendour kids. But there are too few. There are jobs with Cadillac healthand pension plans, and some of those same jobs pay a wage that buysquality housing in good neighborhoods with enough left over to payfor decent child care and maybe even save for college. But there aretoo few such jobs, and they seem to be fading fast, even for workerswith college educations.
In this environment, we need collectiveresponsibility. If middle-class families, with two working parentsplaying by the rules, are having difficulties making ends meet, thenwe need to take steps to reconnect such families to the prosperitygenerated by our economy. The stagnation of middle-income male wagesis related to the hemorrhaging of manufacturing jobs, the decliningpower of labor unions, high average unemployment over most of thepast 30 years (the tight labor market of the late 1990s was anexception, and note that incomes and productivity grew togetherduring those years), and a shift in employment norms wherein firmshave become much more comfortable with layoffs. Offshore competitionis also an ongoing challenge with the potential to place significantdownward pressure on the wage growth of white-collar workers who wereformerly immune from such trade pressures.
Some of these pressurepoints can be addressed by policies that use government investment toincubate promising manufacturers; that reshape labor law to make itmuch easier to build unions; and that apply fiscal, monetary, andeven direct job-creation policies to absorb labor slack whennecessary. A comprehensive safety net, with wage and health insurancefor displaced workers, is needed to prevent the sharp decline inliving standards facing those laid off from middle-income jobs.
Thesame theme of collective responsibility leads to the types of ideasespoused by Warren and Tyagi. Universalizing some of the necessitiesresponsible for the squeeze, such as health care and child care(e.g., universal pre-kindergarten), falls right out of theiranalysis, as does significant investment in public schools.Lower-income working families need other supports—includingtransportation, housing, and wage subsidies—to fill the gap betweenwhat they earn and what it takes to get by in America today.
This ambitious, costly agenda flies in the face of today’s social Darwinism. But at some point the pendulum is going to swing the other way, and those of us concerned about the issues raised by Warren and Tyagi had best be armed and ready with a policy agenda to restore some sanity and prosperity to middle-income America.
Jared Bernstein is senior economist at the Economic Policy Institute, a nonprofit, nopartisan think tank in Washington, D.C., that researches the economy's effect on the working class.