Opinion pieces and speeches by EPI staff and associates.
[ THIS PIECE ORIGINALLY APPEARED IN THE TPM CAFE BLOG ON MAY 31, 2007. ]
Straw men and low bars
I understand that it’s hard to resist arguments that tilt against the conventional wisdom, but this tendency led to two particularly frustrating bits of analysis in the Washington Post.
The format for the two pieces is almost exactly alike. They start out—I’m only slightly paraphrasing—“we all know inequality is on the rise and that the middle class and the poor are getting squeezed, right? Wrong!”
Well, I’m sorry, WaPo, but inequality is on the rise and middle- and low-income families are increasingly squeezed.
The most common techniques to make these allegedly “counter-intuitive” arguments is to a) set up and then tear down a straw man, b) set the evidentiary bar low, and c) ignore inconvenient truths.
Each was put to use by columnist Steven Pearlstein in the first piece (I’ll discuss the second piece in a separate post). He marshals a set of arguments put forth by the economist Steve Rose intended to warn us against accepting the notion that the middle class is disappearing, or that most people’s living standards have been deteriorating for decades, or that most new jobs are “lousy, low-paying service jobs.”
But while you can always find someone to make any argument, I’ve not seen any of these made by the serious analysts who work in this area. I myself have co-written eight versions of “State of Working America,” a comprehensive review and critique of American living standards, and in literally 1000’s of pages, we’ve never made any such sweeping claims.
We have, however, emphatically pointed to shortcomings in the rate at which different groups’ living standards were rising, and assigned this problem to the growth in the inequality of economic outcomes. We’ve especially emphasized the extent of these problems in the 2000s, a period of surging inequality to which Pearlstein and Rose pay far too little attention.
Then there’s the “low bar problem.” Due to stagnating male wages, most of the income gains to middle-income families have come through increased work by wives. (You won’t get this from Pearlstein, but the real wage of the median male worker is about the same now as in 1973.) Pearlstein calls this a “favorite liberal story line” and cites Rose data showing that even when you take wives’ earnings out of the equation, the real incomes of these families went up.
And they do, by all of three percent, over 25 years, or about 0.1% per year. Including wives’ earnings, their income is up 22 percent. In other words, there’s a good reason for this story line.
Then there’s the story these guys love most of all: over the last 25 years, more households have higher incomes. Talk about your low bars. They’re taking fixed (real) income brackets, like the share of families with income below $30,000 in today’s dollars, and pointing out that more families are moving into higher brackets over time.
Of course they are…and other than during the Great Depression, they surely always have been. After all, the economy expands almost every year. It would take a tremendously skewed system to prevent at least some portion of those gains from reaching most families over 25 years (though over some periods, like the last few years, virtually all income gains have flowed to the top 10%).
The useful question is: how steady has this progress been, and to what extent has rising income inequality precluded more broadly shared gains? In the 1970s, about 10% of families shifted from lower to higher income brackets, but in the more unequal 1980s, that share was cut to five percent (about the same as the 1990s). In the 2000s, the trend actually reversed: there are more low-income families, fewer middle-income families, and the same share of high-income families.
Finally, occupational upgrading—the shift from blue to white collar jobs, from manufacturing to services, from factories to offices—has gone on forever. To tout this as a success story is again setting the bar ridiculously low. The question is the not whether we’re creating jobs for systems analysts. It’s whether the compensation in these jobs is keeping pace with productivity. And here the answer is a clear ‘no.’
Extensive research has shown this expanding gap between productivity growth and compensation is one of the most significant economic problems we face. It violates basic economic precepts and more importantly, fundamental principles of fairness. Why Rose and Pearlstein want to downplay/ignore it is anyone’s guess. (Pearlstein has some squirrelly comments about a cyclical effect here, but the gap is clearly structural in nature.)
What’s so peculiar about their denial is that we’ve reached a point where there is extremely wide-spread agreement about the facts of the case. Non-partisans like Ben Bernanke, chairmen of the Federal Reserve, partisans on the other side of the debate, including no less than Bush himself, acknowledge this problem. Even the Heritage Foundation, a group that has heretofore made a cottage industry of explaining away these problems, recently co-authored a document asserting that “a growing gap between the U.S. productivity and median family income challenges the notion that a rising tide will lift all boats,” and “…the up-escalator that has historically ensured the each generation would do better than the last may not be working very well.”
Now, widespread agreement is not, of course, confirmation of facts, but presumably, folks like Bernanke, Bush, and Heritage have to be solidly convinced before they agree with those of us who’ve been writing about inequality and the productivity/income gap for years.
And finally, majorities of the public themselves are reflecting these concerns, and, while I’d like to believe it, most are probably not learning about them through the Economic Policy Institute’s website. Concerns about the middle-class squeeze and the unfair distribution of growth played a demonstrable role in the 2006 election outcomes, and they continue to drive a populist politics today.
Hillary Clinton, for example, is, like Rose, a centrist democrat, but she’s clearly not swimming in de-Nile. She just gave a great speech on these matters, stressing that “while productivity and corporate profits are up, the fruits of that success just hasn’t reached many of our families. It’s like trickle-down economics, but without the trickle.” She gets the problem, and she sets forth a convincing set of solutions.
In their quest to be provocative, the Steves miss the diagnosis: the patient isn’t dying—no one in their right mind thinks so. But our economy has a serious inequality infection, and those who deny it will never come up with the necessary medicine to reconnect growth and living standards.
Jared Bernstein is a senior economist at the Economic Policy Institute in Washington, D.C.
[ POSTED TO VIEWPOINTS ON JUNE 1, 2007. ]