Suffering in ‘Real America’: The 21st Century Experience

February 22, 2017

Turns out America’s elite — the “talking and deciding classes,” as demographer Nick Eberstadt calls it — didn’t realize until Donald Trump was elected president that things weren’t going as swimmingly for Americans in the heartland as for Americans in the “bubble.”

The wake-up call, however, has been in the making for more than 15 years. “Real America” has been suffering through most of the 21st century, and the start of the difficulties can be traced to “a grim historical milestone of sorts.”

Eberstadt, who studies poverty trends, economic development, and political economy, says that the year 2000 is when the “Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then — and broke down very badly.”

Since 2000, America has been experiencing “an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere.”

In terms of wealth, things look good. The estimated net worth of American households and nonprofit institutions more than doubled between early 2000 and late 2016, from $44 trillion to $90 trillion.

Although that wealth is not evenly distributed, it is still a fantastic sum of money—an average of over a million dollars for every notional family of four. This upsurge of wealth took place despite the crash of 2008 — indeed, private wealth holdings are over $20 trillion higher now than they were at their pre-crash apogee. The value of American real-estate assets is near or at all-time highs, and America’s businesses appear to be thriving. Even before the “Trump rally” of late 2016 and early 2017, U.S. equities markets were hitting new highs — and since stock prices are strongly shaped by expectations of future profits, investors evidently are counting on the continuation of the current happy days for U.S. asset holders for some time to come.

That’s the good news. But looking at the economy from a different lens casts quite a stormy picture. The economic crash of 2008 was pretty awful, granted, but the recovery has been super slow, with the total value of the U.S. economy in 2016 being just 12 percent higher than it was in 2007.  However, the slowdown didn’t start in 2008.

Between late 2000 and late 2007, per capita GDP growth averaged less than 1.5 percent per annum. That compares with the nation’s long-term postwar 1948–2000 per capita growth rate of almost 2.3 percent, which in turn can be compared to the ‘snap back” tempo of 1.1 percent per annum since per capita GDP bottomed out in 2009. Between 2000 and 2016, per capita growth in America has averaged less than 1 percent a year. To state it plainly: With postwar, pre-21st-century rates for the years 2000–2016, per capita GDP in America would be more than 20 percent higher than it is today.

What is the cause of this middling performance? Economists can’t agree … except on one thing: The U.S. economy’s potential is declining — meaning that Americans should not expect growth to exceed 1 percent per year if things stay as they are.

Thirdly, Eberstadt notes that the jobs situation is shockingly pathetic. The labor force participation rate — the measure of what percentage of Americans age 20 and older are working — took a huge dive in 2007, and hasn’t come back up yet to where it was.

But again, it didn’t start there. U.S. adult work rates never recovered entirely from the recession of 2001, Eberstadt writes, even as America’s elite cite the oft-quoted “civilian unemployment rate,” to claim a rosy picture. In December 2016 the unemployment rate stood at 4.7 percent, about the same as in 1965, at a time of full employment. But as most people know by now, that rate doesn’t include people who “aren’t looking for work.” Add back in that group, and a much, much higher number is revealed of people out of work.

To put things another way: If our nation’s work rate today were back up to its start-of-the-century highs, well over 10 million more Americans would currently have paying jobs.

There is no way to sugarcoat these awful numbers. They are not a statistical artifact that can be explained away by population aging, or by increased educational enrollment for adult students, or by any other genuine change in contemporary American society. The plain fact is that 21st-century America has witnessed a dreadful collapse of work.

So how do we get to the point where we have more wealth, but slower growth and less work?

This is where Eberstadt starts to pull together some painful truths which many Americans, not just the elite, refuse to see, much less admit. These are the “nonmaterial” issues, specifically old-school notions of family breakdown and the decline of faith, but more recent and much graver concerns about society overall. They include a decline in general health, a drop in life expectancy, an increase in drug dependence, and an overwhelming number of ex-felons who have been precluded from the American Dream.

To start, the opioid epidemic has gone “mainstream” in America, with more people dying of drug overdoses since 2013 than from guns or traffic accidents. Eberstadt points to research by Alan Krueger, former chairman of the President’s Council of Economic Advisers, who found that “nearly half of all prime working-age male labor-force dropouts — an army now totaling roughly 7 million men — currently take pain medication on a daily basis.”

And whose paying for all these drugs? The federal government. The Census Bureau’s SIPP survey (Survey of Income and Program Participation), reports that “as of 2013, over one-fifth (21 percent) of all civilian men between 25 and 55 years of age were Medicaid beneficiaries. For prime-age people not in the labor force, the share was over half (53 percent).”

By the way: Of the entire un-working prime-age male Anglo population in 2013, nearly three-fifths (57 percent) were reportedly collecting disability benefits from one or more government disability program in 2013. Disability checks and means-tested benefits cannot support a lavish lifestyle. But they can offer a permanent alternative to paid employment, and for growing numbers of American men, they do. The rise of these programs has coincided with the death of work for larger and larger numbers of American men not yet of retirement age. We cannot say that these programs caused the death of work for millions upon millions of younger men: What is incontrovertible, however, is that they have financed it—just as Medicaid inadvertently helped finance America’s immense and increasing appetite for opioids in our new century.

“In 21st-century America,” Eberstadt concludes, “‘dependence on government’ has thus come to take on an entirely new meaning.”

Lastly, Eberstadt notes that about 90 percent of felons are free and living in American society today. He estimates that to be about 17 million men — or about one of every eight adult males living in the U.S.

Noting that this population is “roughly twice the total size of our illegal-immigrant population and an adult population larger than that in any state but California,” it begs the question, what is their opportunity in America?

Answer: Not good.

We might guess that their odds in the real America are not all that favorable. And when we consider some of the other trends we have already mentioned—employment, health, addiction, welfare dependence—we can see the emergence of a malign new nationwide undertow, pulling downward against social mobility.

Why does he guess that? Casual observation seems to work, but also falling numbers for geographic mobility, a drop in the churn rate of jobs (meaning the ability to move up the economic ladder as resumes are built), and the decline in the chance of achieving more than one’s parents did.

Where does this all lead? To a drop in social mobility — the ability to survive on merit and hard work, which is the heart of the America Dream.

Eberstadt notes that while America’s elite love to discuss “economic inequality,” that’s irrelevant to a lot of Americans. What does matter is the “reality of economic insecurity.” And if it took the 2016 election to wake up the wealthholders, well, then, the wake-up call is at least a start.

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The American Dream Still Lives Despite Growth Rate of Millennial Incomes

December 15, 2016

Researchers from Stanford, Harvard, and the University of California recently proclaimed that the American Dream is “fading” because millennial incomes are not as high as their parents’ incomes were when they were their children’s age. The American Dream may have taken a beating recently, blogger and Jeopardy champ James Pethokoukis concedes, but mobility is not the deciding indicator of whether the dream is alive.

Why not? Guess it comes down to definitions. The Equality of Opportunity Project defines the “American Dream” as “absolute income mobility,” meaning that kids are doing better than their parents. The project found that just 51 percent of American 30 year olds earn more than their parents did at their age, a decline from 92 percent of 30 year olds in the early 1970s who earned more than their parents did at their age.

Several factors are at play when it comes to a slowdown in absolute mobility: automation, trade, slower economic growth overall in the U.S., and greater disparities in income. But the forlorn conclusions are not as severe as suggested when looked at with regard to the overall picture.

Pethokoukis points to Scott Winship for a deeper explanation. Winship who used to manage research for the Pew Economic Mobility Project, says the project’s data are probably accurate. Absolute mobility is slower now than in the 1950s, ’60s, ’70s, and ’80s. But this has been true for decades so should not come as some tragic surprise, especially since the research is concentrating on the trend and not the actual level of absolute mobility, as reported in breathless newscasts.

What is surprising, however, is the number of variables that the research paper does not include in its analysis when it comes to measuring that level. Among selected measurements excluded, Winship notes, the adjustments for cost of living, which if counted would suggest that the absolute mobility rate would rise 3-4 percentage points. Additionally, government transfers and taxes are not accounted for and baseline incomes are probably higher than what is reported in the research.

If we assume that the incomes of everyone not experiencing absolute mobility in the baseline numbers actually are higher by $5,000 than the baseline figures indicate, that would push up the share of the 1984 cohort achieving upward mobility by about 5 percentage points. Why might that be a reasonable assumption? Health benefits and other nonwage compensation are one factor. Nothing in the Chetty paper includes such benefits as income. Cohabitation is another. Two cohabiters will be two ‘families’ in the Census Bureau data used in the paper (and will be two ‘tax units’ in the paper’s tax data). In reality, cohabiters pool their incomes, just like married couples.

Undercounting of income is a third reason to think that the reported incomes in the Chetty paper are too low. Undercounting is a pretty bad problem in the bottom third, especially in the CPS and census data, but also potentially in the tax data, where people don’t report under-the-table earnings. (I reviewed this evidence in Appendix 3 of my recent paper on poverty trends). A caveat here is that parents also have understated incomes because of these issues, but nonwage compensation, government health benefits, cohabitation, and undercounting of income have all increased over time, so their impact is greater on children.

Put all this together and it looks to me like size-adjusting pushes the absolute mobility rate up 10 points, using the PCE deflator another 3 to 4 points, taxes and transfers another 2, and the rest (plausibly) another 5 points. That’s 20–24 percentage points, which would put the absolute mobility rate at 70–74 percent. Two-thirds seems like a safe conservative estimate.

For adults who were poor children, absolute mobility rates almost certainly remain above 90 percent. This is hardly evidence that the American Dream is ‘fading,’ as the paper’s title claims. The period from 1939 to 1969 was one of exceptionally strong income growth. That growth translated into very high absolute mobility rates. Income growth has slowed since then, though it has not reversed. Thus, absolute mobility rates have fallen, though most people still do better than their parents did at the same age.

What does it all mean? Pethokoukis notes that a 2014 study concluded that the probability of mobility — the chance of moving up or down the income ladder — is about the same as when the parents of today’s millennials were in their shoes.

He optimistically adds that policies that promote work and opportunity, policies that may be coming back into vogue, are a likelier method to faster and more inclusive economic growth than any redistribution methods, an outlook shared by the study’s “superstar” author.

So, as Pethokoukis concludes,

The American Dream still exists, although it’s a bit dinged up. And the United States remains the Land of Opportunity, although it could definitely be better. All of which should pass for good news in a year with precious little of it.

Read James Pethokoukis’ article on the American Dream.

Read Scott Winship’s analysis of the study’s conclusions.

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Official Poverty Rate Declines in 2015. Can Washington Do More?

September 16, 2016

Over the last two weeks, important new reports were released with good news for poverty fighters across the country: the official poverty rate dropped from 14.8 percent to 13.5 percent in 2015, and both food insecurity and very low food security significantly declined as well.

The fact that we are just now seeing progress, as caseloads for major assistance programs decrease, illustrates that a strengthening economy that gets more Americans working is the most essential ingredient for fighting poverty.

Still, a larger share of Americans remain poor than before the recession started in 2007, even when factoring in all non-cash and tax-based government transfers. This means turning to strategies than can further push down the poverty level.

That’s where Angela Rachidi comes in. Rachidi studies the effects of public policy and existing support programs on low-income families, and makes a convincing case that our focus throughout policy should be on getting more Americans working.

A small fraction of prime-working age people in poverty work full-time, full-year, which means that for most, the lack of a full-time job, not low wages, seems to be the primary driver of poverty.

In a study Rachidi conducted over the summer, she found that:

The vast majority of working-age adults in poverty, whether measured by the official rate or the supplemental rate, lack full-time work, and more than 60 percent in official poverty did not work for pay at all in 2014. In addition, the majority of children in official poverty were in a family without a full-time worker, and 31.3 percent were in a family with no working adult at all. …

As Rachidi explains, most working-age adults in poverty are not working for reasons unrelated to searching for work. They have to do with health issues and home and family responsibilities. In other words, Americans in poverty are frequently not able to look for work or take a job when one is offered. They are not actually resistant to doing work. Addressing those barriers could do more to pull those sitting on the sidelines back into the labor market. But government solutions to reducing poverty are addressing the wrong problem.

Antipoverty policies—such as minimum wage increases, wage subsidies, increasing job availability (including subsidized jobs), and workforce development efforts like education and training—often focus on the working poor or on those actively searching for work. Efforts like these are not well-suited to those who are not even looking for work.

From disability programs to child care assistance to apprenticeship programs, a host of changes could be made to increase employment among low-income Americans, Rachidi argues. Many of these can occur on the state level, where much of federal aid is doled out to be distributed as statewide officials see fit. This is useful in the sense that regional problems don’t need a top-down diktat from Washington.

Check out Angela Rachidi’s suggestions on how to make work more attractive to Americans.

At the same time Rachidi focuses on solutions to address the reasons people are in poverty, Edward Conard argues in his new book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class,” that Americans should be wary of relying on increased income redistribution to help the lower and middle classes move up.

He dismantles major myths about income inequality’s impact on the middle and working classes, including the following:

The myth that the rich get richer by making the poor poorer. No other high-wage economy has done more to help the world’s poor than the US economy. Regardless, advocates of redistribution press on. Rising income inequality is actually the byproduct of an economy that has deployed its talent and wealth more effectively than that of other economies — and not of the rich stealing from the middle and working classes.

The myth that incentives don’t matter. In an innovation-driven economy, there are large and compounding costs to dulling incentives for entrepreneurial risk-taking. As payoffs for success have risen, entrepreneurial risk-taking has accelerated US growth relative to other high-wage economies with more equally distributed incomes. Because of this growth, today, median US household incomes are 15 to 30 percent higher than those in Germany, France, and Japan.

The myth that mobility has declined. If the success of America’s 1 percent comes at the expense of the middle and working classes, we should see mobility declining. Yet, even with significant immigration, there is little evidence that mobility has declined or that mobility in Scandinavia, the supposed paradise of redistribution, is better than in the United States.

The myth that the success of the 1 percent hurts the middle class. Since the financial crisis, accusations that crony capitalism and the success of the 1 percent slow middle- and working-class income growth have only grown louder. The incomes of the very top of the 1 percent have soared, and the growth of middle-class and working-class incomes has remained slow. Many insist that this gap has increased because the wealthy are rigging a zero-sum game to take what rightly belongs to others. Conard addresses these accusations and explains how income redistribution is what hurts the middle and working classes.

Conard says income inequality is not a bad thing in and of itself. It drives competition and entrepreneurial risk-taking. Likewise, a heavy reliance on redistributing the income of those entrepreneurs undercuts those who are willing to invest in training and hiring lesser-skilled workers.

At the same time, Conard argues, reducing regulatory rules that create instability in the banking sector would encourage risk-averse institutions to reengage, compounding and growing the economy at a faster rate.

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Uninformed America: Global Poverty Down Nearly 60% in 30 Years

September 2, 2016

The percentage of the world living in poverty has declined by nearly 60 percent in the last 30 years, from 52 to 21 percent. That is an astounding number, especially as the world population has risen from 4.933 billion to 7.215 billion in 2015, a 31.6 percent increase, during that same period.

Even extreme global poverty — defined as lack of access to clean water, enough food, sufficient clothing and shelter, or basic medicine like antibiotics,which impacts 1.4 billion people today — has declined from 21 percent in 2011 to 16 percent in 2013.

Despite these facts, 67 percent of Americans said they thought that global poverty had gotten worse over that time period, according to a Barna Group in conjunction with Compassion International, a child advocacy ministry.

Why so pessimistic? Hearing the news each night regularly puts people in a foul mood, but really, it’s a lack of awareness of efforts that have been made. Fortunately, knowledge is power.

Compassion International’s take is that Christians have a responsibility to be involved in helping relieve poverty, and happily reports that many Christians agree. It notes that more Christians donated to anti-poverty causes than the U.S. population as a whole, and donated more cash than non-Christians overall. This is true for Christians over and under 40 years of age.

The survey also found:

Fewer people are likely to have volunteered for a poverty-related cause in the past year. Practicing Christians, however, are still more likely than the general population to have spent time working to end global poverty. Among all adults, 14 percent volunteered for a church and 11 percent volunteered for a non-profit to help the global poor. Among practicing Christians, one-third of those over 40 volunteered at a church to help the global poor and about one-quarter (24 percent) did so at a non-profit. Among those under age 40, 36 percent volunteered at a church to help the global poor and one-fifth (21 percent) did so at a non-profit.

Still, two-thirds of Americans don’t believe that poverty can be eradicated in the next 25 years, despite it dropping so much in such a short time. They fault corruption, the enormity of the problem, government corruption, and an uncoordinated global response among causes of poverty’s persistence.

As research shows, poverty can be eradicated by creating greater opportunity. The freeing of markets across the globe is the most credited reason for poverty’s reduction. In other words, the ability of people to pursue opportunities to build their own livelihood is the single-greatest facilitator in the reduction in poverty.

Read the global poverty perceptions survey here.

090216 Global Poverty Christians

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