I anticipated the State of the Union Address, more or less, correctly, though I underestimated Obama’s forthrightness. He entered softly, calling for bi-partisanship, but he followed up with a pretty big stick, strongly arguing for his agenda, including, most spectacularly, the matter of class and class conflict, daring the Republicans to dissent, ending the speech on a high emotional note on gun violence and the need to have a vote on legislation addressing the problem. Before the speech, I wondered how President Obama would balance assertion of his program with reaching out to Republicans. This was an assertive speech.

The script was elegantly crafted, as usual, and beautifully performed, as well. He embodied his authority, with focused political purpose aimed at the middle class. This got me thinking. As a sociologist, I find public middle class talk confusing, though over the years I have worked to understand the politics. I think last night it became clear, both the politics and the sociology.

Obama is seeking to sustain his new governing coalition, with the Democratic majority in the Senate, and the bi-partisan coalition in the House, although he is working to form the coalition more aggressively than I had expected. He is addressing the House through “the people,” with their middle class identities, aspirations and fears.

In my last post, I observed and then suggested:

“Obama’s recent legislative victories included Republican votes on the fiscal cliff and the debt ceiling. I believe he will talk about the economy in such a way that he strengthens his capacity to draw upon this new governing coalition. He will do it in the name of the middle class and those aspiring to be in the middle class. This is the formulation of Obama for ordinary folk, the popular classes, the great bulk of the demos, the people. In this speech and in others, they are the subjects of change, echoing Lincoln’s Gettysburg Address: government of the middle class and those aspiring to be in the middle class, by the middle class and those aspiring to be in the middle class, for the middle class and those aspiring to be in the middle class.”

Americans in large numbers think of themselves as being middle class, though this is hardly an identity that distinguishes much. The middle class, in the American imagination, ranges from people who barely sustain themselves to people who earn hundreds of thousands of dollars, own multiple homes and all the latest consumer trophies. The imagined middle class includes all the workers who earn a living wage in a factory, and the owners of the factory, and the managers and clerks in between. If Marx were alive, he would roll over in his grave. This American sociological imagination seems to be an illusion, a case of false consciousness if there ever was one. The puzzle: “What is the matter with Kansas?

Yet, I think it was quite clear last night that the way the middle class is imagined opens American politics. Both Obama and Marco Rubio (in his Republican response) delivered their messages in the name of the middle class. While Rubio used it to denounce Obama, big government, taxing of the wealthy and spending for the needy, Obama invoked the great middle class to defend and propose programs that clearly serve “the middle class” directly, especially Social Security and Medicare, but also aid to education, infrastructure investments and the development of jobs. The undeserving poor loomed behind Rubio’s middle class, (and made explicit in Rand Paul’s Tea Party response), while those who need some breaks and supports were the base of Obama’s middle class. Thus, the middle class and those aspiring to be in the middle class, as I anticipated, was Obama’s touchstone.

I, along with many progressive friends, have been impatient with all the talk about the middle class over the years. I wondered: where are the poor and the oppressed? In this State of the Union, the President made clear that they are central to his concern: an endangered middle class, both those who have been down so long that they haven’t been able to look up, and those who through recent experience know that they and their children are descending. Obama spoke to both groups, the frightened middle class, working people who have experienced rapid downward mobility, and those who have long been excluded from work that pays sufficiently to live decently.

Obama, using straightforward prose, addressed the members of Congress through this middle class. He advocated for “manufacturing innovation institutes,” for universal high quality pre-schools, strengthening the link between high school education and advanced technical training, addressing the costs and benefits of higher education, and raising the minimum wage. In other words, along with his discussion of Medicare, Social Security and Obamacare, he raised the immediate economic concerns of a broad swath of the American public. Noteworthy is that the concerns of the “aspiring middle class” (i.e. poor folk) were central in his presentation.

And then there was the passion focused on immigration, voting rights and gun violence. The closing crescendo, with Obama calling for a vote from Congress on gun violence, dramatically referred back to Obama’s opening, calling for concerted bi-partisan action on the crises of our time. As I heard it, this was about gun violence and its victims, but also the victims of Congressional inaction on jobs and the economy, on the sequester, on the need to invest in our future, i.e. on pressing issues concerning the middle class and those who aspire to be in the middle class. The closing was powerfully delivered, as the response to the delivery was even more powerful. As Obama takes his message to the country in the coming days, and as Democrats and Republicans start negotiations about the budget, I think that there is a real possibility that the coalition that formed in negotiating the resolution to the fiscal cliff and debt ceiling conflicts may very well lead to necessary action, at least to some degree, and they will be debating about the right things, at last.

Figure 1 shows the extraordinary reallocation of national resources from the bottom 80 percent of the population to the top 1 percent, while those in between (81^st-99^th) have, as a group, shown no change in their share of total income.

FIGURE 1

Source: CBO Report “Trends in the Distribution of Household Income Between 1979 and 2007”

Not surprisingly, over the last three decades many households in the bottom 80 percent have faced sharp declines in their standard of living as the costs of health care, higher education, food and energy have risen far faster than the wage check. The result has been the accumulation of unprecedented levels of mortgage, credit card, and student debt.

I have argued that the roots of the economic crisis can be found in the shift in economic thinking and public policy toward free market fundamentalism in the 1970-80s, which fueled the rise in debt, financial instability, and extreme inequality. We’ve seen a toxic mix of financial deregulation, evisceration of protective labor market institutions (like collective bargaining and the minimum wage), a political system corrupted by campaign contributions, and an increasingly polarized education system that performs poorly for most of those in the 80 percent and terribly for the most disadvantaged communities.

But this is not at all the conventional wisdom. Rather, it has become widely accepted that the government is the root cause of the economic crisis of 2008-11 and the decline in living standards for the vast majority. The problem in this conservative vision is too much regulation, too much taxation, too much encouragement of home ownership for low-income families, and government workers (who take too much for themselves in wages, benefits and job security). And worst of all is fighting the economic crisis with deficit spending. Incredibly, many leading academic economists have lent support to this free market fantasy, which of course has the causation between unemployment and government spending exactly backwards.

In the free market vision, extreme inequality is not the real problem. It is government spending and regulations, and reducing both would induce employers to generate jobs, workers to get off unemployment benefits, and students to invest in their own education (as public spending for education is cut back). Mainstream economists have long been fixated on supply side solutions to inequality and low pay. It is a natural part of the package of free market orthodoxy: more education makes people more productive and in competitive labor markets workers get paid what they’re worth (otherwise known as their “marginal product”).

A good example of this free market vision can be seen in David Brooks’ recent column in which he argued that the “right” inequality to worry about is not what’s going to the top 1 percent, but instead it is the “chasm between college and high school grads.” And we get much more than just higher incomes from more higher education. As he put it: “Today, college grads are much less likely to smoke than high school grads, they are less likely to be obese, they are more likely to be active in their communities, they have much more social trust, they speak many more words to their children at home.”

Unfortunately, while college grads may, on average, have higher scores on all these good outcomes, it seems unlikely that an increase in college degrees would have any effect on any of them. Let’s say we increase in the 6-year graduation rate for Bachelor’s degrees from about the current abysmal level of 55% (see below). Should we really expect to see less smoking, less obesity, more social trust and more words spoken to children?  Actually, given the costs and benefits of college attendance spelled out below, we might reasonably expect these outcomes to worsen, as recent graduates with modest incomes realize that they are unable to pay off their  mountainous student debt.

So what is the payoff to getting a college degree? We can start with Figure 1. Since 30 percent of the population over age 25 had college degrees in 2010 (Department of Education, Digest of Education Statistics: 2010, table 8), not many college graduates could have been among the top 1 percent of winners.

Figure 2 provides a view of the timing of the growth in inequality at the top. Saez shows that all the action at the top has taken place within the top 1%, whose share of total income rose from about 14% in 1993 to 23% in 2007, and then declined to about 21% in 2008, as the financial system nearly collapsed.

FIGURE 2

Nothing like this sort of take-off in inequality appears in the earnings data organized by educational attainment. Figure 3 shows that real earnings for those with only a college degree rose modestly in the 1990s and not at all since (in 2007 dollars).  At the peak of the last business cycle, in 2000, the average college graduate wage was $25.86 and increased to $26.40 the next year. Six years later the college wage was $26.51. Measured from 2001 to 2007, the Bush “boom” increased the average college wage by a full 11 cents.

It is true, as Figure 3 reports, that average wages have been much higher for college than high school graduates. But while the average college graduate earns about 1.7 times more than the average high school graduate, this ratio has remained unchanged since 1998: the payoff to a college degree stopped increasing over a decade ago.

The share of young people (25-29) with a college degree rose in the 1990s, but this measure of rising educational attainment has been flat in the 2000s: 29.1% in 2000, 29.6% in 2007 and 31.7% in 2010 (Department of Education: Digest of Education Statistics: 2010, Table 8).

But while many more students have sought post-secondary degrees, the reality of low wages for recent graduates and high costs of schooling have produced dismal graduation rates. Students entering a four-year college in 2003 had a graduation rate of just 55.5% six years later. Even worse, community colleges offering a two-year Associate’s degree report a three year graduation rate of just 29.2% for the 2006 entering class (NCHEMS Information Center, from Department of Education data).

The fact is that many students do not complete college, perhaps partly because they are pretty good at weighing the benefits and costs. Figure 3 graphically illustrates the tiny payoff to going to college and not finishing a four-year college degree. On average, the wage increase from “some college” over a high school degree was $1.85 per hour in 1998, $2.03 in 2000, and $1.92 in 2007.

FIGURE 3

Real Hourly Earnings by Educational Attainment, 1979-2007 (2007 dollars)

Source: Economic Policy Institute

If we succeed in getting more students out of college with diplomas, nearly all will get paid far less than the average college graduate (since they are younger and will come from the lower part of the high school performance distribution). Figure 4 compares the median annual earnings for high school graduates in 2010 with the average annual earnings of those in the 1^st quartile of the college graduate earnings distribution (those with earnings in the bottom 25% of earnings for all college grads). The increase for undertaking an additional four years of schooling is $5,600 for women and $4,850 for men.

Ignoring the complications of discounting, let’s say it cost $10,000 per year in tuition and related costs, and opportunity costs of $25,000 (foregone earnings, at slightly below the median high school graduate rate). Let’s further assume she won’t need to bear any costs of student loans (an entirely unlikely scenario – generally only possible for those whose parents are in that top 1%…).

Under this scenario, she’s got $140,000 invested in her college degree ($35,000 x 4). If her payoff is the average one ($5,600), it will take her about 25 years to break even.

This simple example illustrates the reality that the payoff to getting a college degree isn’t so obvious, given a labor market paying low wages to almost one-third of all workers and costs of education that are rising far faster than the overall inflation rate. This helps explain not just the dismal graduation rates mentioned above, but also why the percentage of 25-29 year olds with a college degree or more has hardly budged over the last decade (29.1% in 2000, 29.6% in 2007, and 31.7% in 2010; Department of Education, (Digest of Education Statistics: 2010, table 8).

It will take some radical institutional changes before we get to a more egalitarian and productive economy, as Brooks would have us do. We would need substantial reductions in the incidence of low pay and the burden of post-secondary education costs on less well-off families. Progressive change requires reversing the inequality revealed in figure 1: let’s start by giving back those 10 percentage points of national income to the bottom 80 percent of the American people. One critical step is to reduce the incidence of low pay without reducing job opportunities. Some say this is not possible, but France has shown that it can be done. I’ll make that case in the next post.

FIGURE 4

Median Annual Earnings in 2010 for High School Graduates and Average Earnings for College Graduate in the 1^st Earnings Quartile (Usual weekly pay X 50)

Source: Bureau of Labor Statistics

]]> http://www.deliberatelyconsidered.com/2011/11/college-degrees-not-the-answer-to-extreme-inequality/feed/ 4 http://www.deliberatelyconsidered.com/2011/08/have-you-ever-been-experienced/ http://www.deliberatelyconsidered.com/2011/08/have-you-ever-been-experienced/#comments Thu, 11 Aug 2011 20:36:12 +0000 http://www.deliberatelyconsidered.com/?p=7017

Let us call experience seniority. And let us mean by this that people who work over extended periods of time develop, ripen, face the hard knocks of life day in and day out, and that they usually gain from the experience.

To be experienced is to have spent the time, paid the dues of the job, learned what it takes, put out the raw energies and skills required. And more: to be experienced means that one has internalized all these things, and that one can bring to the everyday situation of work an array of competencies that the inexperienced are unaware of. That is why this precious game of life requires the serious engagement with it. Engagement brings, even if only eventually, an enlargement and a subtilization of competencies, things that one has in one’s hands, in one’s plan for the day, in one’s skill set, in one’s general work habits, all which add up to becoming experienced.

But consider: “senior” in America typically means old people, not only not at the top of their game, but also not necessarily competent. In the right-wing attack on seniority in the public sphere, and unions more generally, seniority translates into deadwood. Now every institution has some tiny percentage of deadwood in it, people who have disengaged from their work experience. But to assume, for example, as Republican state legislatures are in the process of doing, that teachers with years of experience are the deadwood whose seniority rights have to be eliminated (meanwhile ignoring the administration deadwood), is sheer folly. It completely ignores how those experienced teachers incorporate a reservoir of potential mentoring and actual “how-to” knowledge. It is a way of promoting inexperience at the cost of experienced professionals. And isn’t that what the mad-hatters’ Tea Party celebrates in politics as well: lack of political experience as a qualification for office?

Seniority in the workplace means that the years and decades you have put in paying your dues to the job count for something in the work community, and that a larger and deeper outlook and ability is something . . .

Read more: Have You Ever Been Experienced?

Let us call experience seniority. And let us mean by this that people who work over extended periods of time develop, ripen, face the hard knocks of life day in and day out, and that they usually gain from the experience.

To be experienced is to have spent the time, paid the dues of the job, learned what it takes, put out the raw energies and skills required. And more: to be experienced means that one has internalized all these things, and that one can bring to the everyday situation of work an array of competencies that the inexperienced are unaware of. That is why this precious game of life requires the serious engagement with it. Engagement brings, even if only eventually, an enlargement and a subtilization of competencies, things that one has in one’s hands, in one’s plan for the day, in one’s skill set, in one’s general work habits, all which add up to becoming experienced.

But consider: “senior” in America typically means old people, not only not at the top of their game, but also not necessarily competent. In the right-wing attack on seniority in the public sphere, and unions more generally, seniority translates into deadwood. Now every institution has some tiny percentage of deadwood in it, people who have disengaged from their work experience. But to assume, for example, as Republican state legislatures are in the process of doing, that teachers with years of experience are the deadwood whose seniority rights have to be eliminated (meanwhile ignoring the administration deadwood), is sheer folly. It completely ignores how those experienced teachers incorporate a reservoir of potential mentoring and actual “how-to” knowledge. It is a way of promoting inexperience at the cost of experienced professionals. And isn’t that what the mad-hatters’ Tea Party celebrates in politics as well: lack of political experience as a qualification for office?

Seniority in the workplace means that the years and decades you have put in paying your dues to the job count for something in the work community, and that a larger and deeper outlook and ability is something to be valued. In short, it means that all that work adds up to something like: work is a life, and that the work and workplace are intimately connected to the lives of the workers and the surrounding community.

Seniority in the Republican attack on middle class values means something quite different apparently. It means that you are someone earning more than the average for your job, so that your elimination can mean savings. That abstraction of eliminating seniority translates practically into hiring and promoting cheap, inexperienced labor. It means not having to pay fair and deserved wages (and, at the other end, not paying fair and deserved taxes). It serves to protect growing moneyed power interests at the cost of skimming from the middle class. It manifests the unwritten right-wing rule: Crush the vulnerable, immunize the invulnerable.

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From the fracas in Washington, it would be impossible to know that Americans still live in the world’s richest country. In 2010, the U.S. GDP was about two-and-a-half times that of its nearest competitor, China—you know, the country that’s building new cities everywhere and a bullet train system to ferry citizens among them. But to listen to the political discourse that currently dominates the airwaves, the U.S. is facing financial collapse, if not now then in another decade, and it cannot afford another dollar for many collective goods, whether an improved mass transportation system or health care for senior citizens.

As a number of commentators have observed, the political crisis over the debt ceiling is a distraction from graver and more urgent problems: especially the stagnation of the economy, which is not generating enough jobs to make much of a dent in the unemployment rate or to give young workers solid footing for the beginning of their career climbs. The Great Recession, supposedly over, is threatening to turn into a Japanese-style stagnation that could endure for a decade or more.

The state of the U.S. economy is bound up with the plight of the American middle class, as Robert Reich has acutely observed. That plight has been developing for decades, a lot longer than the debt problem, which dates back just a decade, to George W. Bush’s entry into the White House. The economic gains since the 1970s have been concentrated at the top of the income distribution, in the top few percent, and little has trickled down into the middle class. One widely cited statistic has it that the top 1 percent now take home about a quarter of the national income, up from just 9 percent in 1976;  the distribution of wealth is even more unequal. (By the standard statistical measure of income inequality, the Gini coefficient, the U.S. is now considerably more unequal than any other economically developed country and more resembles a developing nation like Nicaragua.)

The lack of economic gain by the middle class has fed directly into economic stagnation. In order to keep up their standard of consumption, many families have been going deeper and deeper into debt, encouraged in the last decade by the inflation of the values of their homes. The aggregate level of household debt in relation to GDP is higher than it has been since the Depression of the 1930s and is responsible for the weak demand that is keeping the U.S. from enjoying a robust economic recovery. Robert Reich’s basic message seems fundamental:  America has prospered when its middle class has done so; but their economic situation today is parlous.

The great damage of the current conflict over the debt ceiling is that it takes place, as Gary Fine rightly points out, on the terrain of conservatives. The Tea Partiers’ strategy of intransigence has worked. Accordingly, the discussion of remedies has been narrowed to the spending side: where are the cuts going to come from? Yet it isn’t that the federal government spends so much money, anyway. In 2010, the total level of spending of all levels of government in the U.S. amounted to 40% of GDP. That tied us with Canada but placed us well behind the levels of spending in Germany (44% of GDP), the United Kingdom (47%), and France (53%), all countries less wealthy (in terms of GDP per capita) than the U.S. As I noted in an earlier post, the increases in spending at the federal level under Obama so far are in line with those under Bush, with the exception of fiscal year 2009, a year of extraordinary economic turmoil that is divided between the two Presidents.

Not fully recognized is that a fall-off in government revenue plays an outsized role in the budget deficit. In nominal dollars, federal revenues today are about where they were in 2000, which means that in real dollar terms they are down by 16 percent. As a fraction of GDP, they have dipped to a level, less than 15%, that hasn’t been seen in six decades. The Bush tax cuts are an important part of the story, and most analyses point to them as the largest single factor behind the deficit. The recession and the halting recovery have also lowered federal revenues. Obama and the Democrats are right to insist that revenue increases must be a part of any solution, but in terms of the legislation under consideration to raise the debt ceiling this time around, they have lost the argument.

(And don’t listen to the right-wing whine that the affluent already pay more than their fair share in taxes. Conveniently for their argument, conservatives mention only federal income taxes, which amount to about 40 percent of federal revenue.  Almost as much is collected through payroll taxes, which, thanks to the cap on the income subject to Social-Security taxes, are mostly paid by ordinary workers.)

The resolution of the current tempest will last only for a while, six months if the Republicans are successful, eighteen if the Democrats are. The duel will be resumed, but we now see with clarity what the positions of the two sides will be. On the right, the prime target will be the entitlement programs, Social Security and Medicare, along with Medicaid, since the retirement of the baby boom over the next quarter century will ensure that the expenditures on these programs as they are currently configured will rise massively. On the center-left, the argument will be for more balance by raising revenues, but there has already been a concession that entitlement programs need to be cut back.

Any reduction in entitlement programs is equivalent to an additional tax on the middle class and the less affluent. For instance, Social Security is fully funded through 2037 because, since the Reagan administration, workers have paid extra amounts into the trust fund to build it up for the day when the baby boomers begin to retire. (The extra payroll taxes were recycled into the federal budgets of the time and spent.) To make the payments required in coming years, Social Security will need to go beyond incoming payroll taxes and tap into these savings, which effectively means that the money comes from elsewhere. Slowing down the rate of increase in Social Security payments to retirees, a proposal part of the Obama-Boehner negotiation, will slow down this transfer process and the need for more federal revenue. It will also give the retirees measurably less money over their lifetimes.

The debt ceiling crisis has pulled apart the curtains on a Washington political class that is at an impasse, unable to strike a “grand bargain” that would take the issue off the table. A “solution” therefore awaits the 2012 election, which may prove as momentous for the nation’s course as were the elections of 1980 and 2000. The Democrats under Obama’s leadership have given up considerable ground to the Republicans. But if the Grand Old Party takes the Presidency or the Senate while retaining the House, watch out!