What if we could do-over the past 30 years?
One of the all-time classic Hollywood movies, Frank Capra’s morality tale, “It’s a Wonderful Life,” poses the great “what if” question regarding the life of the self-sacrificing protagonist, George Bailey (Jimmy Stewart). On a dark and snowy Christmas Eve, a guardian angel gives the suicidal Bailey a chance to see what his small community, Bedford Falls, would have been like had he never lived. It would have been a much worse place without him.
Now two distinguished political scientists, Jacob Hacker and Paul Pierson, in their disturbing best-seller, Winner-Take-All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class, have posed the “what if” question with regard to the moribund American Dream. A key justification for our capitalist economic system is that the benefits of free enterprise and the accumulation of new wealth will “trickle down” and benefit the rest of us as well. But in fact, during the past 30 years the reverse has happened. There has been a “bubbling up” of income to the benefit of the top one percent and a shrinking standard of living for the great majority of Americans. For instance, the median income of male high school graduates has declined by 28 percent in past three decades, and the income of all wage earners is down seven percent since 1999, while the income at the top of the scale has gone up an astonishing 250 percent since 1980.
What would it be like, the authors ask, if the income distribution today were exactly the same as it was in 1979? Here are the authors’ calculations: As of 2006, the bottom 20 percent of households earned an average of $16,500. Under the alternative scenario, which Hacker and Pierson call “Broadland”, the average household income would be $22,366, or $5,866 more per year. The change for the middle 20 percent of families would be even more impressive, with an average increase of $12,295 more than the current $52,100 a year (or $4,340 a month) – roughly a 25 percent pay raise. On the other hand, the top one percent would see a pay cut of more than half of their 2006 average of $1,200,300, to $506,002 (most of it from the top .01 percent, the billionaires).
Pure fantasy, you say? Well, that’s the way things actually were in this country during an economic boom that lasted for almost 40 years, from the 1940s to the1980s. And it’s even less far fetched when you look at some other highly successful economies, like Germany, Japan, the Netherlands, and Switzerland, where there has been little change in the income distribution during the last three decades. America’s shameful “exceptionalism,” moreover, has nothing to do with the outsourcing of jobs, or automation, or the lack of a college degree. It’s purely a matter of how the income pie has been sliced in this country, and Hacker and Pierson show that politics and government actions (or inactions) had a lot to do with it.
It’s not hard to imagine what “Broadland” would look like today if we could “replay” our income distribution. The fraction of Americans living in (or near) poverty would be far smaller than roughly one-third of us. Government programs that assist low income workers, like Medicaid, food stamps, winter heating oil, subsidized housing, and more, would all be much smaller and impose far less of a tax burden. Indeed, most working Americans would be able to afford health insurance and most middle-income families would be able to avoid running up heavy credit card debts. They would also be able to put money aside for the college expenses of their children and even to save something for retirement. There would also be few if any mega-mansions and mega-yachts, fewer high-end resorts, or gated communities, and certainly no $5 million-dollar campaign contributions. It’s also likely that we would have much less crime, drug addiction, domestic violence, premature deaths and other pathologies associated with poverty.
And that’s just the beginning. Just imagine what you might be able to do with an extra $5-12,000 a year, and how that sum, multiplied by about 300 million, could transform our entire economy and society.