It's The Gap, Stupid
Sep 1, 2017
16 Min read time
Three new books draw a disturbing picture of America as a system of compounding inequality driven by a hereditary meritocracy of professional elites.
Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It
Richard V. Reeves
Brookings Institution Press, $24.00 (cloth)
Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide and Threatens Our Future
Thomas M. Shapiro
Basic Books, $28.00 (cloth)
White Working Class: Overcoming Class Cluelessness in America
Joan C. Williams
Harvard Business Review Press, $22.99 (cloth)
In 2002 Jeremy Paxman of BBC’s NewsNight put then-Prime Minister Tony Blair on the spot, asking him whether it was “acceptable for the gap between rich and poor to widen.” Blair refused to answer directly:
Blair: It is acceptable for those people on lower incomes to have their incomes raised. It is unacceptable that they are not given the chances….
Paxman: So it is acceptable for the gap to widen between rich and poor?
Blair: It is not acceptable for poor people not to be given the chances they need in life.
Paxman: That is not my question.
Blair: I know it's not your question but it's the way I choose to answer it. If you end up going after those people who are the most wealthy in society, what you actually end up doing is in fact not even helping those at the bottom end.
The two men went back and forth like this for a while with Paxman continuing to push Blair for a straightforward answer. While Paxman was concerned about the “gap,” the economic distance between the rich and the poor, the haves and the have-nots, Blair saw things differently. Though he found it difficult to acknowledge publicly, Blair cared about the “floor”—that those with the least in society have enough resources to live decently. Floor people don’t mind the extreme wealth of Bill Gates, Warren Buffet, or Charles Koch so long as the poor aren’t too poor. On the other side of the Atlantic, Bill Clinton had turned the Democratic Party’s focus towards the floor as well with his signature welfare and anti-poverty efforts—a trend that continued with the compassionate conservatism of George W. Bush. For the most part, concerns about the floor dominated political conversations.
America is a hereditary meritocracy. If you were born in the bottom fifth, you are quite likely to stay there and likewise for the top fifth.
But then the Great Recession of 2007-2009 happened, marking the beginning of a second chapter in the contemporary inequality debate. Predatory financial institutions, underwater homeowners, and government bailouts for the few rather than the many created fertile ground for those concerned about the widening gap to seize the political imagination. After the Great Recession, the sense spread that people at the top of the economic, status, and political ladder might bear some responsibility for hardships lower down.
The Occupy Wall Street movement, which began in 2011, was the first to succeed in exploiting this climate. They put gap concerns squarely into the public lexicon with their slogan, “We Are the 99%.” By 2013, Obama decried inequality as the “defining challenge of our time,” and his rhetoric focused squarely on gaps. And by the spring of 2014, Harvard University Press’s Belknap imprint published the English translation of Thomas Piketty’s Capital in the 21st Century—this decade’s most important gap book. Ian Malcolm, an editor at Harvard University Press, expected that Piketty’s economic treatise might sell “as many as 200,000 [copies] over two or three years.” Within just a few months, however, the book sold 400,000 copies and global sales reached $2.1 million in one year. While Bill Clinton and Tony Blair were floor politicians in the 1990s, Elizabeth Warren, Bernie Sanders and Jeremy Corbyn emerged as powerhouses in the 2010s with one common message: it’s all about the gap.
The “gap” understanding of inequality is, of course, not new to those progressives who have read Karl Marx, John Maynard Keynes, and John Rawls, and who have long thought that class and economic concerns should figure more prominently in American politics. In these narratives, a small group of plutocrats are the principal beneficiaries of inequality and bear responsibility for it. The comforting feature of these views is that very few people see themselves in this villainous class. We’d all be better off—economically and democratically—if only we could muster the will and means to reign in the 1 percent.
A true reckoning requires acknowledging that a larger group of people than the 1 percent have benefitted from, and perpetrated, American inequality.
Now, however, we are at the beginning of a third chapter in our public discussion of inequality. The unexpected election of Donald Trump—and the passage of Brexit in the UK—signaled that many contemporary progressives will be less comfortable in this era. Trump’s victory demonstrated that there is no coherent 99 percent of people who might coalesce against the 1 percent of plutocrats. As one of my students at the Kennedy School of Government put it on the day after the election, “I’ve dedicated my life to helping people in the bottom half of the income distribution, and I feel like they’ve just given me the finger.”
Many liberals have tried to understand the soul of the Trump supporter, turning to books such as Arlie Hochschild’s Strangers in Their Own Land, Kathy Cramer Walsh’s Politics of Resentment, and J.D. Vance’s Hillbilly Elegy. But three newer books shed light on the current era by focusing on and redefining “gap” economics. These books—Dream Hoarders by Richard Reeves, White Working Class by Joan Williams, and Toxic Inequality by Thomas Shapiro—force us to rethink who the beneficiaries, perpetrators and victims of inequality really are. They draw an important and disturbing picture of America as a system of compounding inequality driven by a hereditary meritocracy of professional elites. The easy battle line separating the 1 percent from the rest of us does not delineate this debate. Instead, a true reckoning of “gap” inequality requires acknowledging that a larger group of people have benefitted from, and perpetrated, American inequality.
• • •
Reeves and Williams both argue that the winnings from inequality go to college-educated professionals—an elite group that is much larger than the top 1 percent. Reeves calls this elite the “moneyed upper middle class” and draws his line at the top 20 percent of the income distribution: households with annual incomes greater than $112,000 in 2014. Williams focuses on a very similar group that she calls the “Professional-Managerial Elite” (PME). PME households have incomes in the top 20 percent and at least one college graduate. (Only one in three Americans has a college degree.)
“Those of us in the upper middle class are not the victims of growing inequality,” Reeves writes. “We are the beneficiaries.” He amasses many different kinds of data to show that the top 20 percent have pulled away from everyone else in America since the 1980s. While the income of those in the bottom 80 percent of America has grown only by about 25 percent in the last four decades, it has almost doubled for the top 20 percent. While the wealth that the average family in America holds has not grown at all over this period, the amount of wealth held by families in the top 20 percent has grown by more than half. The top 20 percent are significantly more likely to exercise, less likely to smoke, live longer, and their life expectancy has grown more than everyone else in recent decades.
In Dream Hoarders, Reeves favors reforms that would “share the dream” of educational and economic opportunity that the top 20 percent now enjoys. But in White Working Class, Williams explains why the dreams of the White Working Class (WWC) are very different from those of Professional Managerial Elites. She argues that those in the WWC don’t want the same things as PMEs, don’t want to be PMEs, and that, in fact, they resent PMEs. Her book elaborates on the ideas of a widely read Harvard Business Review article that was published two days after the 2016 Presidential election. It explicitly contrasts White Working Class culture and values with those of the PME. Her contribution—while overdrawn and overgeneralized—explodes the notion that Americans are just one big middle class.
‘I’ve dedicated my life to helping people in the bottom half of the income distribution, and I feel like they’ve just given me the finger.’
In one of the book’s most memorable passages, for example, Williams recounts a class-clueless exchange at her husband’s WWC high school reunion. Forgetting his roots and his audience, her husband asked a classmate what he did for a living, a common icebreaker among PMEs.
“The classmate’s face got very red,” Williams writes, “as… he hissed ‘I sell toilets.’”
WWC people, Williams argues, find dignity and honor in jobs that aren’t enjoyable or fulfilling in themselves, but rather in what the job “allows you to buy and whom it allows you to support.” PMEs, in contrast, organize their lives to prioritize jobs that are not just economically rewarding, but also empowering, collaborative, and socially valued. Along with this difference, there is a rootedness to WWC life that is absent among PMEs who grow up in one place, attend university in another, and pursue careers still other places.
These differences are part of the reason, Williams explains, why the WWC admire the rich—such as Donald Trump—but resent professionals. Being rich is an aspiration glorified in movies and television programs, but the WWC have direct and grating experience with professionals. Oftentimes, professionals are the clueless managers who exercise arbitrary power and condescend. As Alfred Lubrano explains in Limbo: Blue-Collar Roots, White-Collar Dreams (which Williams quotes from), college kids “don’t know shit about how to do anything, but are full of ideas about how I have to do my job.”
Williams wants the PME class to better understand WWC culture in order to create the possibility of building a progressive alliance. It is important for PMEs to recognize, for instance, that they value things that smack of class privilege to the WWC: five dollar cups of coffee, private schools, Soul Cycle, and bizarre and unaffordable foods that don’t taste good. During a meeting with Iowa farmers in 2008, for instance, then-Senator Barrack Obama tried to sympathize with the fact that crops hadn’t increased in value despite rising supermarket prices. “Anybody gone into Whole Foods lately and see what they charge for arugula?” he asked a bewildered crowd.
At the time, there was no Whole Foods in Iowa. (There is now one in Des Moines.)
• • •
A better understanding of inequality, however, goes beyond just identifying cultural divides. Shapiro and Reeves both explain the dynamics of American inequality with nuanced “intersectional” accounts. In a 1989 essay, Kimberlé Crenshaw coined the term “intersectional” to explain how the discrimination faced by black women cannot be understood by looking either at the gender or the racial dimensions of their experiences. Rather, the two combine to create a distinctively powerful kind of disadvantage. Similarly, one cannot understand contemporary American inequality by looking at income or education or the labor market alone. Location, wealth, education, race, history, networks, and public policy combine in complicated ways to make the top 20 percent or the Professional-Managerial Elite better off at the expense of the rest.
It is also important to understand that American inequality really does grow out of a kind of meritocracy. People with high incomes generally do have more skills and education. But it is meritocracy without equal opportunity. Some people get a head start through attending better schools and other advantages. (Reeves reminds us of football coach Barry Switzer’s observation that some people are born on third base, thinking they’ve hit a triple.) These advantages, or disadvantages as the case may be, are handed down across generations. America is a “hereditary meritocracy.” If you were born in the bottom fifth, you are quite likely to stay there and likewise for the top fifth. As Reeves points out, the “stickiness” of class status from one generation to another is greater in America than in most other Western countries.
Being rich is an aspiration glorified in movies, but the white working class has direct and grating experience with the professional-managerial elite.
Merit, of course, is not directly transferred through genes, but the advantages that allow some people to acquire the skills and connections to prove their merit can be handed down through families, beginning as early as conception. Women in the top 30 percent of the income distribution are half as likely to have unplanned births as those in the middle of the income distribution. PME mothers are more likely to refrain from smoking and drinking than WWC moms, and their children are much less likely to have low birth weights. PME parents talk to their children more and read to them more. PME parents buy houses in good neighborhoods with better schools or send their children to private school. They have the money to spend on enrichment programs and extracurricular activities. Kids from families in the top 20 percent of the income distribution are more than twice as likely to get a Bachelor’s degree than those in the middle 40 percent, and they are much more likely to go to Ivy League or selective colleges. PME families are more likely to have the social connections that help their children land internships—internships that then lead to the high-paying, self-actualizing jobs that PME younglings and their parents desire.
In Toxic Inequality, Shapiro shows how wealth—as distinct from income—and race compound this inequality of hereditary meritocracy. He traced the fortunes of 187 families over more than a decade, from 1998 until 2012. Wealth, he showed, is a form of inequality as well as an ingredient in it. Families who lacked wealth in Shapiro’s study often failed to recover from shocks such as job loss, illness and the Great Recession. Those who had access to wealth—often from their extended families—were better able to weather these downturns.
Wealth often enables people to buy homes. Shapiro found that nearly every homeowner in his study said that they relied on family financial help to buy their houses. And homes, in turn, are a key to generating wealth: Shapiro found that the 97 families who gained wealth did so largely because they were able to own homes in good neighborhoods where their equity appreciated. Nationally, home equity accounts for two-thirds of the wealth held by the middle 60 percent of Americans. In class terms, enough wealth enables families to buy nice houses in safe neighborhoods with good schools and thus step on the rungs of the opportunity ladder that leads to college and perhaps jobs in the Professional Managerial Elite.
By looking at particular family histories, Shapiro’s study shows how advantages and disadvantages interact in complex ways to determine individual fate. “Wealth and race,” he concludes, “map together to consolidate historic injustices, which now weave through neighborhoods and housing markets, educational institutions, and labor markets, creating an increasingly divided opportunity structure.” Wealth is thus critical to opening the doors of opportunity in America. But because wealth is even more unequally distributed in America than income, it poses a daunting obstacle to increasing equality. In 2013, the top fifth of wealth holders in the U.S. possessed 87 percent of the wealth. The bottom half of Americans had just 1.1 percent.
While Reeves and Williams unfortunately treat classism as a white-on-white problem, Shapiro addresses race carefully.
While Reeves and Williams unfortunately treat classism as a white-on-white problem, Shapiro addresses race carefully. African-Americans on average have less income than white families, but they also have far less wealth. In 2012, the median income of white households was 1.7 times that of African-American households. But according to the Pew Research Center, the median wealth of white households was thirteen times greater than that of African-Americans. This vast difference is due largely to a history of social and legal discrimination that denied African-Americans access to employment opportunities, education, and good housing in high opportunity neighborhoods through discriminatory federal housing programs, red-lining by real estate intermediaries and lenders, restrictive covenants, and exclusionary zoning. They were effectively barred for centuries from obtaining wealth in America.
While just policies would help counteract these powerful forces of hereditary meritocracy, both Reeves and Shapiro show how government action often reinforces these inequalities. For instance, federal tax policy allows families to deduct their mortgage interest payments from their taxable income. This is a 70 billion dollar tax benefit and half of its value goes directly to the top 20 percent. Moreover, tax rates for capital gains are much lower than income rates, a benefit for those overwhelmingly at the top of the income scale who derive income from wealth. Locally, exclusionary zoning policies create wealth-segregated neighborhoods. As Reeves writes, “We are using the tax system to help richer people buy bigger houses near the best schools.” Overall, Shapiro writes, “tax expenditures actively redistribute wealth to the top while skipping those low- and moderate- income families most in need of building up assets.”
• • •
All three books offer policy ideas about how to mitigate hereditary meritocracy: pave the road to home ownership and help people stay in their houses through loan modifications; raise the minimum wage and pursue job creation; increase access to high quality primary, secondary and higher education; reform taxes to level the disproportionate housing, capital gains, inheritance, and college savings benefits enjoyed by the Professional Managerial Elite; curb exclusionary zoning; formulate trade and immigration policies that are more responsive to working class concerns. These are just a few of the measures that could help, but the root problem is lack of power and will, not a lack of policy ideas.
All three books are very articulate about the power that the top 20 percent exercises. But they devote very little consideration—maybe three or four pages in total—about what increasing power for the bottom 80 percent might look like. That is a mistake, for both ethical and practical reasons. Ethically, the bottom 80 percent should exercise political power to advocate for their own interests, just like everyone else in a democracy. And practically, it is difficult to imagine how policies that benefit the 80 percent at the expense of the 20 percent (or even the 1 percent) would gain traction and force of law without more organization from the 80 percent themselves.
The root problem is not a lack of policy ideas, it is the lack of power and will to change the status quo.
Looking abroad, many societies that have low levels of inequality also have high participation in labor unions. The chart below depicts levels of inequality for countries in the Organization for Economic Cooperation and Development that were never part of the Soviet Block, i.e., most of the stable democracies of North America and Western Europe. Inequality is shown on the vertical axis as the ratio of income in the top 20 percent to that of the bottom 20 percent (the “80-20 ratio”), placing the most unequal countries in this chart at the top: Mexico, Chile and the United States. Union density—the fraction of workers in that country who belong to labor unions—is depicted on the horizontal axis.
Figure 1: Inequality and Union Density — 2013
The striking pattern is that countries with high union density have low income inequality (Denmark, Finland, Sweden and Iceland) and the high inequality countries also have low union density (U.S., Chile, Mexico and Turkey). There are some countries that don’t fit this pattern—countries that have low inequality without lots of unionization (France, Germany, Switzerland and the Netherlands), but the empty space in the upper right of the chart is notable: there were no countries with high unionization and high levels of inequality in 2013.
Given the feeble condition of unions in the United States, I doubt that power for the bottom 80 percent will come primarily from a re-energized labor movement. If it is to come at all, it will perhaps take the form of social movements such as a more durable Occupy Wall Street or a more inclusive Tea Party. Or it may come from insurgent politicians within the main political parties who develop new ways of connecting and organizing their constituencies. It may also come from politicians leading new parties—parties that vanquish the old by capturing the imagination of alienated constituencies, as Emmanuel Macron has done in France and the Five Stars Movement may yet do in Italy. But the important thing to remember is that absent such power, the injustice of inequality stemming from hereditary meritocracy will compound unabated.
September 01, 2017
16 Min read time