Steve Cohen and I are thrashing about, trying to write a piece about corporate welfare capitalism and the future of social insurance for the Atlantic Monthly. We are treading in the footsteps of Peter Gosselin of the LA Times and Jacob Hacker:
Posted by DeLong at November 16, 2004 10:05 AM | TrackBackMiddle-Class-Hood and Its Discontents
Stephen S. Cohen and J. Bradford DeLong
U.C. Berkeley
October, 2004
Once upon a time, or so the common mythology goes, America was a place with lots of upward but little downward mobility. In the really old pre-Civil War days, you could start out splitting rails, light out for the Western Territory, make a success of yourself on the frontier, and perhaps even wind up as President. In the relatively recent post-World War II expansion, you could make it by securing a blue-collar job in a unionized manufacturing industry or working a white-collar job at a large, stable American corporation like IBM, AT&T, or General Electric--firms that offered job security, relatively high salaries, and long, stable career ladders.
There was always as much mythology as truth to this image of America. Lighting out for the Territory was expensive, for covered wagons did not come cheap. More generally, while many terms could be used to describe economic life in the nineteenth and early twentieth centuries, "stable" and "secure" are not among them. Even in the 1950s and 1960s, only a minority of blue-collar Americans--a largely white, male minority--found well-paying stable jobs working for large, stable capital-intensive manufacturing companies. And only a minority of white-collar workers had decades-long tenures working their way up the promotion ladders of Megacorp, U.S.A. As late as the 1950s, women could be and were fired--routinely, as a matter of corporate policy--when they got married.
But there was considerable truth to this image as well, particularly after World War II. Regardless of educational level or family background, most Americans who valued stability and security really did have the chance to grasp it; jobs with "a future"--e.g., with steadily rising wages and solid retirement plans--were plentiful. And even for many of those who were fired, the economic risks were usually fairly low: the unemployment rate for married men during the 1960's averaged 2.7 percent, and finding a new job was a relatively simple matter. It was during this era -- roughly from 1948 to 1973 -- when, to the astonishment of interviewing sociologists, a majority of Americans began to define themselves as "middle class."
This post-World-War-II period stands as a reference point in our collective memory of our economic history as one of rapid growth and shared prosperity. It lingers in our national memory, and remains an important source of confidence in the unity of our culture and the awesome power of our economy. But although it serves as a baseline for our economic expectations, our sense of "the way things ought to be," in reality the post-war era was in all likelihood an aberration, a period marked by a confluence of events never before seen in our history, and unlikely to be seen again
Most obviously, it was an era defined by the isolation of America's continental market from the devastation of World War II. In the early postwar decades, foreign competition exerted virtually no pressure on the economy. (In 1965, for example, imports of automobiles and auto parts came to less than $1 billion -- less than one sixtieth of what they are today, after adjusting for inflation.) At the same time, there existed enormous pent-up demand for the products of mass production: cars, washing machines, commercial aircraft, refrigerators, detergents, lawn mowers, television sets, and more.
Government policy reinforced these trends, starting with the creation of a permanent military program of spending and R & D, and continuing through the massive public works program, the building of the suburbs, underpinned by the Federal Highway Program and Federal programs for homeownership (often with only 5% down and a thirty year, fixed mortgage). Suburbanization drove the economy and a legacy of regulatory institutions and behaviorial norms that originated in the New Deal, developed during the War came into full force: social security, a system of unionized labor relations, regulation.
Thus favorable macroeconomic circumstances, the absence of foreign competition, a system of government support and regulation, and large private business provision to many of what in Europe would have been publicly-provided social insurance benefits all combined to give post-war America much the benefits of social democracy without the costs. The economy did not stagger under the weight of ample benefits, or high taxes. Americans--at least white, male Americans--did not have to worry about tradeoffs between security and opportunity, because the U.S. offered the advantages of both. And it seemed that this was the natural order of things...
Definitely a good teaser for the eventual article. I may have to subscribe to the Atlantic, just to make sure I don't miss it.
Posted by: RT at November 16, 2004 10:15 AMSame here, teased into another magazine subscription. Are you going to the same place that Rajan and Zingales take us in "Saving captialism from the capitalists?" Why do I suspect not?
Can you post a bit more?
Posted by: David Rankin at November 16, 2004 11:02 AMSuggestion -- talk at least a little bit about social capital, and the decline of "connective wealth". Burt's term (social capital) for the ability of a person to connect with others who possess greater cultural capital, or simple wealth goes along with studies on the way people are hired, the way they are promoted, the way they are educated and able to leverage their connections from education -- etc., etc., all of which, as the inequality gap widens, becomes harder for lower and middle income groups.
Posted by: roger at November 16, 2004 11:30 AMSuggestion -- talk at least a little bit about social capital, and the decline of "connective wealth". Burt's term (social capital) for the ability of a person to connect with others who possess greater cultural capital, or simple wealth goes along with studies on the way people are hired, the way they are promoted, the way they are educated and able to leverage their connections from education -- etc., etc., all of which, as the inequality gap widens, becomes harder for lower and middle income families.
Posted by: roger at November 16, 2004 11:30 AMI would like to see an analysis/quantification of effects of
1) demographic changes -- the “baby boom”
2) residential changes – move from apartments to single-family residences
3) informal economy – housewives’ work and DIY
4) changes in the goods/services (blue collar/pink collar) ratio
5) increased socialization of elites; i.e., corporate responsibility to community
6) deference to maleness -- WWII and Korean War contributions
Ellen,
Check out James Kunstler's works for some informal analysis of the great suburban deblacle.
I have mixed feelings about the shift from defined-benefit to defined-contribution pensions. My employer converted its pension plan to a defined-contribution plan back in 1995. From my own point of view, I understand the DC plan much better: the assets in the plan belong to me, I control how they're invested, and if I change jobs, I take them with me (they get rolled over into an RRSP, the Canadian equivalent of a 401k). If I had a choice between sticking with a DB plan or switching to a DC plan, I would definitely go with the DC plan. But it certainly shifts the risk from companies to workers.
There's some justification for shifting pension risks away from companies, because companies don't look as invulnerable as they did a few decades ago. But I don't think there's much justification for shifting them away from the government.
According to a friend who's an economist, a few years ago the Canadian government was considering converting the Canada Pension Plan (the Canadian equivalent of Social Security) from a pay-as-you-go system to a fully-funded system. They decided against it. The reasoning was interesting:
The problem is that from an individual point of view, you may end up outliving your retirement savings. You could buy an annuity from a private insurance company, but they're very expensive. The Canadian government can provide the CPP with much less overhead than a private insurance company can provide an annuity: the difference in cost is something like _three times_. Because the CPP covers the entire population, the risk of individuals living too long can be spread out over 30 million people.
Instead of converting the CPP to a fully-funded system, the government simply raised contribution rates to make it sustainable.
http://www.cppib.ca/info/articles/ap-07-01-2002.html
The other thing that came to mind while reading the stories in the LA Times article was that people really need to be careful about raising their level of consumption (new car, bigger house). Andrew Tobias's advice is to imagine that your income is 10% less than it actually is, to make it easier to justify holding off on spending money. With the increased volatility in people's incomes, maybe that should be more like 20%: we should be saving much more, rather than less.
Posted by: Russil Wvong at November 16, 2004 01:10 PMI see from the opening that you are beginning to understand what Grover Norquist meant when he said that the impending death of the "Greatest Generation" was the best thing that could happen to the Republican Party.
If you take away the hope presented by the confluence of the GI Bill, plentiful employment, and world dominance (due in no small part to a relatively small number of casualties in the two Wars to End All Wars, as well as the natural resource advantage), you are left with a people who can be kept poor, dirty, and busy (as the old saying goes).
Such a population may well believe that as it is is all there is, and that their station in life reflects their ability and their lot.
Posted by: Ken Houghton at November 16, 2004 01:46 PM"Most obviously, it was an era defined by the isolation of America's continental market from the devastation of World War II. In the early postwar decades, foreign competition exerted virtually no pressure on the economy."
So, isolation and a lack of foreign competition made everything great. Tariffs encourage isolation and reduce foreign competition. Thus, tariffs would make everything great.
Well, they would if no one else had export capability. (Say, if we drop The Big One on North Korea and Iran; chorus of "Political Science," anyone?)
"Don't want to hurt no kangaroo..."
Posted by: Ken Houghton at November 16, 2004 05:47 PMIf you haven't yet, be sure to read Barbara Ehrenreich's "Fear of Falling: The Inner Life of the Middle Class" before completing this article. Looks like you're covering a lot of the same ground...
Posted by: YellowDogBlue at November 19, 2004 10:06 AMDrinking makes such fools of people, and people are such fools to begin with, that it's compounding a felony. Robert Benchley (1889 - 1945)
Posted by: well fargo mortgage at November 21, 2004 03:29 AMDavid Broder discusses the decline of welfare capitalism and the steadying weaking of organized labor:
"
It made me realize how rarely observers like me make the link between the decline of progressive politics and with it the near-demise of liberal legislation, and the steady weakening of organized labor.
The economic effects of that trend are well documented. In the just-published update of their annual volume, "The State of Working America," Lawrence Mishel, Jared Bernstein and Sylvia Allegretto of the Economic Policy Institute chart the decline of union membership from roughly one-quarter of the workforce in the late 1970s to barely one-eighth today.
"This falling rate of unionization has lowered wages, not only because some workers no longer receive the higher union wage, but also because there is less pressure on non-union employers to raise wages," they write. And the gap is large. In 2003 the average blue-collar union job paid $30.76 an hour in wages and benefits, compared with $18.11 for the nonunion job."
http://www.washingtonpost.com/wp-dyn/articles/A6959-2004Sep8.html