Inequality in America

GUEST: Eric Wanner, Ph.D.
VTR: 09/30/2004

I’m Richard Heffner, your host on The Open Mind. Some of you know, too, that I began my professional career many, many years ago as an American historian … and that even in its most recent revised and updated 50th anniversary edition my paperback “Documentary History of the United States” that it remains very much my proudest and favorite writing effort.

What you couldn’t know, however, is how much I can still almost taste the pleasure and pride I felt as more than a half century ago I wrote so definitively about “The Roosevelt Revolution” – FDR’s New Deal – and the ways in which, permanently I thought and assured my readers, it had reversed the economic and social inequality that had plagued laissez-faire, post-Civil War industrial America and in the Depression had left one-third of Americans “ill-fed, ill-clothed, ill-housed”.

It wasn’t that I was so certain “Happy Days Are Here Again”… but, like many others, I did believe – and wrote -that the New Deal had permanently tempered, indeed reversed, the polarization and stratification of America, had brought an end to the rich simply getting richer and the poor poorer.

Well, I was wrong. And now the Russell Sage Foundation and Carnegie Corporation of New York have partnered to explore a topic they believe should be high on our public agenda: income inequality in our nation, and the social impact of the ever widening gap between rich and poor Americans.

That exploration has resulted in a volume titled “Social Inequality”… and here to examine it with me today is Dr. Eric Wanner, President of The Russell Sage Foundation.

At a recent Carnegie Corporation Forum on Social Inequality, Dr. Wanner said that “The United States has been through an inequality shock over the past few years and this economic trend will have important social consequences.”

So, let me begin our program today by asking my guest what some of those consequences are .…or may become.

WANNER: Well, they really run right across the board. You can begin to think about a child born into this society and what kind of family, what kind of structure and function and success his family has. What kind of schools he goes to. What kind of health insurance he has, what kind of chances for a college education, he has. It really runs the gamut from beginning … we’ve … let me try it this way.

We try to think that we provide something like equality opportunity in the United States, and the question is what are our institutions which … under … gird that opportunity. And what we worry about is that those institutions have become significantly weaker in the past 30 years.

HEFFNER: That’s an astounding thing, isn’t it? I mean are you as astounded as I am?

WANNER: I heard your introduction and I’m as disappointed as you are. Like you, I think, not only through the New Deal, but through the 1950s and 60s, we really were at a time when opportunity seemed to be getting more equal.

The idea of extending college to the children of the working class through public support for higher education was increasingly successful in building a middle class. To the extent that … to the extent that we have a kind of social program in the U.S., it’s been billed “the middle class”. And it’s that social program which seems to have weakened over the last 30 years.

HEFFNER: Well you say “the program to build the middle class”; that that’s what has weakened. Aren’t you … as I read the report, as I read the different papers, my sense is that it is the lower class that has suffered here, not the middle class. Right or wrong?

WANNER: Well, that’s right. I think the idea was to get the working class on board …

HEFFNER: Move them into the middle class.

WANNER: Move them into the middle class and it’s that process which has, which has become weaker. It used to be the case that there was a … in the fifties … there was a period of a kind of an implicit labor pact, between labor and big business. In which an industry was unionized and wage competition was taken off the board. That is, all companies within a given industry would have to pay a living wage; a family wage.

Globalization … the option that business now has to move production offshore, puts wage competition back on the table and makes it much more difficult for companies to pay the kinds of unionized wages that in the fifties made it possible for many working families to move into the middle class.

HEFFNER: That’s not a point that many Americans appreciate now, I gather.

WANNER: No, unions are in bad “odor” I guess, or what’s left of them. You know, the unionization rate in private sector is less than 10% now. It was up to about 25% only 40 years ago.

HEFFNER: Well, then the, the globalization phenomenon is in that way, at least, a negative factor for us.

WANNER: Yes …you have to …there’s a kind of …pluses and minuses about globalization. On the one hand I think we all ought to be clear that we benefit from globalization; that increasing integration of the world economy has made it possible for us to benefit as consumers from low cost production in other countries. The principle of comparative advantage is real and works. Countries with lots of low cost, low skilled labor perform production processes at costs which are well below what could be, what could be produced here. And we all benefit from that.

On the other hand, obviously, the workers who, who now have to face competition from low wage labor on a world scale don’t benefit. So there are winners and losers from globalization and what we’ve done a very bad job at, it seems to me, is trying to in some way support the losers; figure out how to provide resources that make transitions for those workers into other niches in the economy possible for them.

HEFFNER: Well, let’s go back then … relating to that …to this point you made about the movement into the middle class that has always been the great pride of America.

WANNER: Right.

HEFFNER: I have the sense, and I assume you do, too, that that isn’t even thought about because certainly in the, in the period of political campaigns, and you and I are talking now without knowing what’s going to happen as a result of the present Presidential election … there is so much talk about middle class America as if that movement into the middle class were still going on.

WANNER: Yeah. That’s right. I think the middle class feels itself to be under a great deal of pressure. They have to put … generally have to put two workers into the labor force now; they have less time to spend on their family and on their kids. There’s quite a bit of downward wage mobility, as, as the economy does churn … in creative destruction really means destruction as well as creativity. That’s what …

HEFFNER: What do you mean?

WANNER: Well, there was a … it’s a standard kind of one-liner in economics, that what capitalism manages to do, is harness a great deal of innovative initiative and constantly explore kind of new niches, new products, new services, new ways of delivering them. Ways of lowering prices. But in the course of doing that we’re getting a great deal of job creation, and job destruction … this “churn” rate, which is the rate at which people lose their jobs and have to find new jobs has been going up. The churn rate causes increased insecurity in the middle class as they worry a great deal about how they can sustain their standard of living.

The thing about individual lives, of course, is that they need a certain amount of continuity. The economy needs a lot of creativity and change and creative destruction. Individuals and families need some degree of permanence and insurance against risk. What we haven’t, as a system, I think, been able to do is to figure out the right balance.

You talked about the New Deal. The New Deal was an attempt to re-strike that balance. I think the post war thirty years from ’45 to 1975 were an effort to sort of work out the kinks in the New Deal and make it a, make it a functioning system. In the last thirty years, what we’ve seen is that system begin to erode and we get more insecurity in the middle class, feels itself under a great deal of pressure and then politically looks around for “what’s the cause?” And then I think you find the political parties, in a way, competing to blame the other guy for this problem.

HEFFNER: What is to blame?

WANNER: That …

HEFFNER: Is it possible to identify what is to blame.

WANNER: Yeah. I’m smiling …

HEFFNER: Where is the fault?

WANNER: Yeah. I’m smiling and you’re smiling because we know it’s a very hard question. And we know there is, probably, no one simple cause, and certainly nobody’s morally to blame. I think of it as a process in which the economy is partially to blame.

So some of the trends that you and I have already been talking about certainly … globalization, the increased … the increased volume of world trade. The fact that American workers have increasingly to compete with a world labor market, not just a national labor market.

Certainly computerization is to blame to the extent that, of course, it’s enriched us all, and again made the economy more productive, particularly in the last ten years. But, there again have been winners and losers. Some people’s jobs are complimented by computers. Their production, their work is made more valuable. Other people are basically replaced by information technology.

So, the fact that in the last thirty years, I guess it is, the premium associated with a college education has risen from about 30%, it used to be the case that a college educated worker could expect 30% more income over his or her lifetime. That premium has risen into the 80s now. Why? Well, in part, because the college educated worker is doing things which can’t be done in Mexico or China, but also in part because the college educated worker is doing things that can be made more powerful and productive by computers, whereas the high school educated worker is not.

So, those are two large factors. But there are many others. Certainly de-unionization is one, and implicitly you and I have talked a little bit about that, the weakening of the unions … unions used to be a great force for wage equalization, obviously. And as, as union membership has decreased, particularly in the private sector, that force for pushing up wages … keeping up wages at the bottom has, has declined.

Deregulation is another. Deregulation on the one hand, has led to increased productivity in, in many industries, as it allowed … allows new market entrants to come in in an effort to create new production processes, new ways of delivering services. But in many cases, those new companies are small, their not unionized … they compete by means of, of low cost labor, basically.

HEFFNER: The deregulation … do you find yourself increasingly, as I do, that it was that mantra of “deregulation, deregulation, deregulation” that may be of more importance than we’ve thought in this developing bad situation?

WANNER: It’s possible. I think what we’re bad at doing … we can identify the factors that have lead to increasing economic inequality. What we can’t really do is tell you … is provide a weighting on those factors … tell you, sort of, how important one was as opposed to the other. We’re pretty sure that the two big, that the two big players were computerization and, and globalization.

But everything mixed together at the same time, so it’s hard to sort of pull this apart scientifically and tell you how much was one, how much was the other. Let me say, you know, deregulation goes along with a lot of political changes which, in, in various ways have kept us … have allowed the inequality to sort of stretch out.

And we could talk … maybe about some of these general political processes, which …

HEFFNER: Which ones …

WANNER: … in addition to …

HEFFNER: … which ones do you refer to?

WANNER: Well, here’s one. I mean … let’s take political participation. It’s a mystery, but here’s, here’s the fact. We know that over the last fifty years political participation has gone down. If you track something like voting in Presidential elections, which is easy to track. What you’ll se is that everybody is voting less now than they voted in the Presidential election of 1960. Of course, there’s going to be an election a month from now and perhaps that will … that historical trend will change, because this is perhaps a very close election to which a lot of people are paying a lot of attention.

But, between 1960 and 2000 participation has generally gone down. However, if you look by income at who is participating, what you find is that it’s the lowest income families who have dropped out of the system at the highest rate. That is they’re participating at an even lower rate than they were … that the decline amongst the low income families is the greatest … greater than others. Now, if you ask well what’s the effect of that? The effect is that since lower income families are voting less, the median … the income of the median voter of the people who are voting is going up. And one of the studies that we supported shows that the median … the income of the median voter has gone up from about the 53rd percentile to something like the 60th percentile.

That means that on the whole, the group that’s voting is increasingly more wealthy than the entire population …

HEFFNER: And votes accordingly.

WANNER: And votes accordingly.

HEFFNER: You know … two things you threw in a moment ago, when I asked you what the factors were involved here. You said, well of course, there’s no moral judgment. You were sort of saying as if this just had to happen. Now do you mean that? No moral judgment here, no one to blame?

WANNER: All right, that’s …

HEFFNER: No judgments to blame.

WANNER: That’s, that’s a fair question. As the income distribution stretches apart, and people’s interests also stretch apart … the difference between the interests of the lower middle class and the poor and the wealth … if people simply pursue their interests, then it maybe the case that we have a society which is less empathetic … let’s put it that way.

That, that … in which the interests of the well-off and the interests of the less well-off, stretch apart; are quite different and people have difficulty making that imaginative leap to what the lives of the others are like. Therefore the upper tail … families in the upper tail of the income distribution may understand less and less what the problems of the poor, the near-poor and the middle class really are. They may be less interested in supporting the kinds of public resources, like, say, universal health care, that, that the rest of the population would benefit from. Now … is … should we make a moral judgment?

HEFFNER: That’s a moral decision.

WANNER: Well, okay. The question is, as a social scientist, I guess … we don’t so much in moral judgments. You could say, as I have, “they’re less empathetic because they’re sharing fewer experiences as they … as their lives become more and more different than the lives of the rest of us … they’re sharing fewer experiences, they have less empathy and they’re more likely to serve their own interests, not seeing that those interests are antithetic to the interests of the lower class.

HEFFNER: On an un-kinder note, one can say, “Let them eat cake”. That’s a moral translation, if seems to me of the kind of analysis that you, that you just offered. It’s understandable that here you feel this way and when you move into a higher income area, you have fewer concerns back there. But those are moral judgments and we made different moral judgments in the 1930s.

WANNER: I’ll go this far … I’ve been surprised that our political process has been as short-sighted as it appears to have been. Society, after all, is a collaboration … you do what you do, I do what I do. We couldn’t be sitting here in this studio doing what we do unless we were surrounded by technicians who are making this program, unless people were taking care of the building that we’re in, unless people were cleaning the street.

It’s a collaboration. To support that collaboration we need to make sure that everybody has a stake in doing their part. To do that we need to make sure they have meaningful jobs and meaningful work and that they receive remuneration for that work that’s fair and decent and provides the basic standard for a standard of living. If we don’t do that, if we simply look at consumer surplus, that is we simply try to drive down prices and wages as far as we can, we may get to the point where we have a society that doesn’t work very well.

HEFFNER: Okay. You’re, you’re a real social scientist, I’m not. Therefore, you can put it in these terms, you can talk about being short-sighted; you can talk about the dynamics and I think it’s mean spirited … we’re talking about the same thing, we’re talking about the same actions that have the same results. But … well, I was particularly interested in one of the papers in your recent Carnegie Forum on this subject … one of the authors quoted Robert Samuelson in 2001 saying that if Americans couldn’t abide rising inequality, we’d now be demonstrating in the streets. And I thought there was a lot of wisdom packed in this because it seems to be saying … “hey, we can go on and on this way, there isn’t enough reaction to making it important for us to reverse the process that’s taken place since the 1960s, 70s.” How do you react to that? Do we give a damn?

WANNER: There are all kinds of possible answers. Let’s try a couple. One is that in the last forty years you’ve had a situation in which the rich have gotten very much richer in real terms, maybe the top 20% has real income gains on the order of 80%. The median hasn’t done that badly, the median’s income gain … the median family …the family in the middle … their income gains in real terms have been on the order of 35% to 40%. This is not a recipe for revolution in the streets.

HEFFNER: But what about the last group?

WANNER: Okay, what about the last group? You tend not to get revolutions, I think, when, when the poor are doing very badly. You would … as an historian … know better, perhaps than I, but one time you get them is when there are rising expectations and those expectations aren’t met. I’m not sure where the expectations of the poor are. It seems to me that the fact that they’re not participating politically possibly means they don’t think there’s much in the political system for them. They don’t see much different between the two parties. To the extent that they don’t participate, of course, they won’t be represented by the political system. One of the, one of the papers that we’ve supported, not in the book, estimates the degree to which political representatives are paying attention to their constituents. And roughly the calculation is that they pay about three times as much attention to the interests of their well-off constituents as to their poorer constituents … in terms of their roll call votes, actually. So in all these ways, the poor seem to be left out of the political system and to some extent suffering in the economic system, but so far they don’t seem to be acting in any collective way. Part of the problem may be that there’s a high rate of immigration in this country and that a lot of what’s going on at the lower end of the labor market is immigrants coming in and taking jobs that, that other people, that native born Americans won’t do or don’t do.

HEFFNER: Without feeling that they’re so much at the bottom of the pack.

WANNER: Exactly the point I was going to make. That’s right. They’re happy with those jobs, the jobs they’re comparing to … what they would have had in their home country … compared to that they’re doing somewhat better, so they form a rather docile, contented labor force. Even though their actual economic returns are rather small.

HEFFNER: Dr. Wanner, it seems so strange to me, but maybe you’ve really answered the question there … only it’s gong to be a temporary answer. As the immigrants and the others who are, at least accepting of what they have or are getting here, they’re functioning in a very open society in one way … it is communications, it is television that is opened for full view the way the middle class and the way the upper, richer groups live. And that’s in full view of those who are not living so well. And I wonder if one doesn’t have to anticipate that at some point we’re not going to continue to live as high off the hog without a lot of disturbance down at the bottom.

WANNER: I agree with that, and that’s what I had in mind when I said I thought our political process was remarkably short-sighted and that we weren’t reminding ourselves that society is a collaboration in which everyone has got to benefit.

But let me go back to this question of why the poor or the near poor aren’t doing anything much. Aren’t, aren’t recognizing the problems associated with rising inequality. Groups don’t act politically by themselves, in a vacuum. There have to be what social scientists call “mobilizing institution”, institutions which help educate people about their own economic self-interests. And which inform them about reasonable ways to act or effective ways to act collectively.

So, if, if you look at other countries and look for countries in which the poor do participate politically, what you find are things like high rates of unionization, where the unions are involved in bringing workers who otherwise might not participate into the system. And as unionization has gone down here …that’s why things are … when you asked me what’s the, what’s the problem and I said “well, it’s a recipe, everything’s put together.” Union … de-unionization is also connected to declining rates of political participation among low income families.

HEFFNER: I wish I hadn’t just gotten the signal that we have less than a minute left because what I’d really like to talk with you at some length … about with you at some length … is the matter of the, the intellectual classes that have traditionally led, identified and led those who perhaps didn’t see the lot they were actually … that was actually theirs. The intellectuals aren’t at the barricades saying, “come on” are they?

WANNER: I agree. And I don’t know the answer to that question. A historian might. I suspect it has a lot to do with the failure of state socialism, particularly in eastern Europe and in the former Soviet Union that intellectuals who thought, at one point, they had an answer, perhaps now are not so confidant of what that answer might be. I personally believe, as I guess obviously comes out in this conversation that our version of capitalism needs some real design changes. But I cannot tell you exactly what those design changes are. I think that’s the project for the next generation.

HEFFNER: It’s the project … certainly the subject … for another program. Thank you for joining me, so much, Dr. Wanner.

WANNER: I enjoy talking.

HEFFNER: And thanks, too, to you in the audience. I hope you join us again next time, and if you would like a transcript of today’s program, please send $4.00 in check or money order to The Open Mind, P. O. Box 7977, FDR Station, New York, New York 10150.

Meanwhile, as an old friend used to say, “Good night and good luck.”

N.B. Every effort has been made to ensure the accuracy of this transcript. It may not, however, be a verbatim copy of the program.