Don Peck’s article, Can The Middle Class Be Saved, appearing in The Atlantic last fall, opens with a review of a disconcerting but, perhaps, not overly surprising report conducted by Citigroup a few years before the Recession of 2008:
“IN OCTOBER 2005, three Citigroup analysts released a report describing the pattern of growth in the U.S. economy. To really understand the future of the economy and the stock market, they wrote, you first needed to recognize that there was ‘no such animal as the U.S. consumer,’ and that concepts such as ‘average’ consumer debt and ‘average’ consumer spending were highly misleading.
“In fact, they said, America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second group didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets. It was this segment of the population, almost exclusively, that held the key to future growth and future returns. The analysts, Ajay Kapur, Niall Macleod, and Narendra Singh, had coined a term for this state of affairs: plutonomy.
“In a plutonomy, Kapur and his co-authors wrote, ‘economic growth is powered by and largely consumed by the wealthy few.’ America had been in this state twice before, they noted—during the Gilded Age and the Roaring Twenties. In each case, the concentration of wealth was the result of rapid technological change, global integration, laissez-faire government policy, and ‘creative financial innovation.’ ”
He further notes that:
“According to Gallup, from May 2009 to May 2011, daily consumer spending rose by 16 percent among Americans earning more than $90,000 a year; among all other Americans, spending was completely flat. The consumer recovery, such as it is, appears to be driven by the affluent, not by the masses. Three years after the crash of 2008, the rich and well educated are putting the recession behind them. The rest of America is stuck in neutral or reverse.”
Not a pleasant picture and, adding further insult – and injury – to injury, it turns out that the average American family earned less in 2009 than it did 1999. The continuing slow job growth in our current recovery certainly isn’t doing much to help matters, either. So, reflecting further on the job scene, what’s going on? According to Erik Brynjolfsson and Andrew McAfee, writing in their book, Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, there are three general explanations usually offered: “cyclicality, stagnation and the ‘end of work.’ ”
Cyclicality “holds that there is nothing new or mysterious going on; unemployment in America remains so high simply because the economy is not growing quickly enough to put people back to work.
“Stagnation in this context means a long-term decline in America’s ability to innovate and increase productivity. Economist Tyler Cowen articulates this view in his 2010 book, The Great Stagnation: ‘We are failing to understand why we are failing. All of these problems have a single, little-noticed root cause: We have been living off low-hanging fruit for at least the last three hundred years. ... Yet, during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That’s it. That is what has gone wrong.’
“The third explanation for America’s current job creation problems flips the stagnation argument on its head, seeing not too little recent technological progress, but instead too much. We call this the ‘end of work’ argument, after Jeremy Rifkin’s 1995 book of the same title. In it, Rifkin laid out a bold and disturbing hypothesis, that ‘we are entering a new phase in world history – one in which fewer and fewer workers will be needed to produce the goods and services for the global population.’ ” But Rifkin was hardly the first to broach this scenario; it’s a situation that John Maynard Keynes wrote about as far back as 1930.
The culprit, in the “end of work” argument is, as suggested by the title of Shoshanna Zuboff’s 1988 work, In The Age of the Smart Machine, you guessed it, the computer – and related information technology and worldwide communication networks.
Brynjolfsson and McAfee find that each of these explanations has considerable merit, but do not fully explain our present predicament. A predicament that includes study data indicating that the period spanning 1983 to 2009 saw over 100% of the wealth increase in the country accruing to the top fifth of the population. The bottom 80% actually saw a decline in their wealth. Drilling down further, the top 5% realized over 80% of that gain and the top 1% over 40%.
By the standard set forth in Franklin D. Roosevelt’s second inaugural address: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” It does appear that we may be falling a bit short.
We’ll be exploring this topic further in future posts. It’s one that I suspect will consistently challenge us on a variety of fronts.