http://www.truthdig.com/arts_culture/item/20080502_jeff_madrick_on_high_wire/
Jeff Madrick on ‘High Wire,’ Peter Gosselin’s Look at the Economic Meltdown
High Wire
By Peter Gosselin
Basic Books, 272 pages
It would be a pity if Peter Gosselin’s new book, “High Wire: The
Precarious Financial Lives of American Families,” gets lost in the
current turmoil over subprime mortgages and deepening recession. He has
done the most convincing job I’ve seen in capturing the failures of
America to deal with a changing, complex and far less generous economy
than it has known in the past. That economy, despite cyclically painful
periods, was so generous compared to the rest of the world over its
200-year history in terms of the rate at which it expanded the typical
American’s standard of living that the country’s national character was
formed by it. The resulting tendency in America, though thankfully
violated from time to time, is decidedly toward a laissez faire
philosophy of government.
But that national character is now being tested in a less friendly
economic environment. Are America’s reflexes, honed over a couple of
centuries, up to the task? It is not clear.
Peter Gosselin’s admirable objective is to show how many people of all
income levels are now insecure and afraid in an economy that Americans
are constantly told, by Republicans and Democrats alike, has long been
back on track. At least, that was the conventional wisdom until a year
or so ago, when the current hydra-headed crisis emerged. But, in truth,
the American economy has not been on track for a generation now. Even
the Clinton interlude was, as we now know, prompted by intense and
unsustainable financial and housing speculation.
The main theme of Gosselin, a veteran reporter for the Los Angeles
Times, is the rise of deep-seated financial, health and material risk.
He gathers the many pieces of the new economic America together quite
beautifully, even elegantly, and brings them alive with interesting and
not the usually predictable individual examples. I learned many things
in this book, and I’ve been covering this territory for a long time.
Take pension and health-care coverage. Most of us who read about these
matters know about, and too many of us have already lived through, the
growing failure of America’s pension and health-care system. Americans
depend on having a good job for having a good pension. Now pensions are
being frozen by major companies like IBM, many industries from autos to
airlines are on a downward slide and their pension funds won’t pay off,
and the Enrons of the world caused many to lose hundreds of thousands of
dollars of retirement savings through fraud.
Less well known, half of Americans work for a company today that offers
no retirement plan at all.
And then there are the 401(k)s. Gosselin says the major shift in America
toward a riskier society regards retirement. Three out of five employees
who are fortunate enough to have a private retirement plan now don’t
have a pension at all but rather a defined contribution plan like a
401(k) to which they must contribute, and then manage the money. Many
and probably most will save too little and invest unwisely. As for
health-care plans, co-pays are going up, employees are losing coverage
and the health plans don’t pay off as they promise, the latter a scandal
that needs far more airing.
As for health care, few can remotely afford a policy that is not
financed by the job. And more than 15 percent of Americans have no
health insurance, anyway. Many of those work or are in a family with a
worker. The deaths caused by lack of insurance should startle the nation.
But what makes Gosselin so interesting is that he digs further for the
pertinent government failures. For example, the Employee Retirement
Security Act (ERISA), passed in 1974 originally to protect workers, now,
as he writes, protects big companies. The reason is that ERISA prevents
companies from being sued by employees. In the current age, “[ERISA] has
become a crucial vehicle for shifting economic dangers that our
employers once helped us manage onto our backs.” And then Gosselin gives
a few poignant examples of the injured parties. Like the woman, Debra
Potter, who was denied medical coverage though she had multiple
sclerosis. (ERISA’s reach has been expanded to include health-care
coverage.) She couldn’t sue to get her benefits and got far less than
needed. I for one was not fully aware of this outrage.
A former insurance consultant told me recently that some employees are
paid at insurance companies according to how many claims they can deny.
I was shocked. Naive me, and after all these years. Of course, that is
how the companies operate. Create incentives to maximize profits.
Gosselin’s central claim is based on some research he did to show that
the proportion of American families whose incomes are likely to fall
substantially has risen sharply since the 1970s. I can’t vouch for the
methodology, but it seems correct on a quick reading (and he defends it
persuasively against other views in a section on methods). More
precisely, the probability that income for a family will drop by 50
percent in any two-year period has risen from one in 20 families to one
in 10. One in 10 is pretty darn high, and that’s in any two-year period.
Over time, more will fall into the category. What’s more, there is much
less chance of making a big comeback and rising to one’s old income
level than there was 30 years ago.
Gosselin computes, using another methodology, that incomes in general
fluctuate more—by as much as 26 percent on average for the typical
family as opposed to 17 percent years ago. When families depend on two
incomes, as many do today, such wide fluctuations make sense. Family
incomes are up if modestly over 30 years, but mostly because the spouse
now goes to work. If the spouse leaves the work force for whatever
reason, the income falls sharply in percentage terms. That wouldn’t be
bad if that income were just frosting on the cake, but spousal income is
often critical to well-being now because wages have stagnated for so many.
Gosselin even makes a chapter on America’s poor sound original. The poor
are not different—they are like you and me, he says, simply trying to
make ends meet and get a life, especially for their kids, and even hold
in their hearts a hope for the American dream. He finds conservative
claims that we have conquered poverty nonsense. Gosselin is a little too
optimistic that “deprivation” has been eliminated in America, as some
conservatives like to say. How poorly those in poverty eat we now know.
Diabetes is up, not because the poor are literally hungry—some in
America do go hungry, by the way—but partly and maybe largely because
bad food is almost always so much cheaper and readily available than
nutritious food.
Gosselin, however, puts his finger on it. Poverty is not about
black-and-white deprivations in the contemporary world. The poor in
America live in total chaos—in his words, “…—pay cuts and eviction
notices, car troubles and medical crises, hirings and firings—that keeps
reversing their families’ advances, rattling their finances, nudging
them toward the economic brink.” Some have the audacity to say the poor
can use their credit cards to bail themselves out of disaster. Yes, at
18 percent interest. Bring on the Mob! What do the poor borrow for? A
good restaurant meal? A pair of impossibly expensive sneakers? Maybe,
once in a while. But Gosselin looks into a case or two: $170 to fix the
steering on the car, a $300 cash advance for the rent, another $1,000 to
bring a wife to the U.S. from Central America.
On education, Gosselin tells us that a college degree doesn’t guarantee
a good job but often lots of debt. On housing, he sniffed out the
subprime dangers early. Regarding health coverage, he notes the usual
problems of a health-care system dependent on the job: reduced coverage,
higher co-pays. But he delves into the even more alarming scandal of
policy cancellations and rescissions by supposedly respectable
companies, a stunning and growing national disgrace that doesn’t receive
enough attention.
Gosselin doesn’t get everything, however. There is the shocking level of
child poverty in America, higher by most measures than anywhere else in
the rich world. There is highly unequal quality of public education.
But, most important, there is simply the long stagnation in earnings,
most obvious when we isolate males from females. Gosselin buys too
easily into the notion that the American economy has, based on the
conventional data like the unemployment rate and the growth rate, done
well for a generation and that it is essentially financial security that
is the issue.
Not exactly so. To be precise, the 30-something median male—in the
middle of the distribution—makes less after inflation today than did the
30-something male in the 1970s. As some perceptive commentators put it,
the typical male today makes less than his father did 30 years ago.
This needed more attention in an otherwise excellent book. In other
words, typical men have made no progress compared with typical men a
generation ago. This experience violates the true American dream, not
the one about how we can all get rich, but the one about how, if we work
hard, most of us will do better over time than the previous generation.
We can’t all rise higher on the pyramid, but the whole pyramid can rise.
In fact, that is what happened in the U.S. since the beginning. That is
what made the nation special and its people optimistic. But now it no
longer does.
Meanwhile, women’s wages are up, and that’s what has mostly kept family
income rising. But there is still an enormous gap between what men and
women earn, far more than in some European nations, for example. In
Sweden, men and women make about the same. Labor market discrimination?
You bet.
At least men haven’t fallen much behind in America, some will answer.
Well, high-school-educated males have fallen behind by a lot.
College-educated males have seen median wages stagnate for 30-year
stretches and longer. Here’s some of my own data, done with the
estimable researcher Nikos Papanikolaou.
Median Males: High School
(12th-grade diploma)
Age 25-34 Age 35-44 Age 45-54
1979 $36,865 $42,358 $44,102
2005 $30,000 $37,550 $39,000
Note below that even typical men with a college education have seen no
increase in earnings for 20- and 25-year stretches since 1969.
Median males: College
(Four years / degree)
age 25-34 age 35-44 age 45-54
1969 $45,634 $54,760 $52,479
1979 $40,489 $54,816 $64,783
1989 $44,925 $54,731 $66,105
2000 $45,342 $58,945 $63,480
2005 $47,000 $63,000 $64,000
Data: Jeff Madrick and Nikos Papanikolaou, Schwartz Center for Economic
Policy Analysis, The New School.
But more to the point, inflation-adjusted income, even if it rises
slightly, does not mean that people are actually keeping up. The costs
of education, health care, drugs and public investment have gone up much
faster than incomes. So people can buy clothes, food or electronics more
easily, but they can’t buy health care, or they have to move into an
expensive house to get a good k-12 education for the kids. Or they can’t
as easily afford their commuting costs. A subway ride in New York in the
1970s cost 35 cents; now it’s $2. That adds $50 a month to the commuting
bill. This is why Barack Obama is right when he talks about bitterness
and anger, and why claims that the political attitudes are only about
culture shifts is wrong.
Now the experience of the 2000s has brought the message home. Wages
haven’t gone up at all in the 2000s, despite record profits and decent
productivity growth. Family incomes are down. These are unprecedented in
the modern economy.
And all this follows a generation of rising insecurity, uncertainty,
unrewarded effort and for many a treadmill of growing despair, cynicism
and occasional chaos that this author describes so clearly, even
elegantly. Gosselin’s gotten the new American condition better than
anyone else I’ve read.
Jeff Madrick is editor of Challenge Magazine and senior fellow at the
Schwartz Center for Economic Policy Analysis, The New School. A book of
lectures, “The Case for Big Government,” will be out in June, from
Princeton. He is also at work on a history of the U.S. economy since
1970, to be published by Alfred A. Knopf.
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
