Soaring Economic Inequality

It’s the biggest issue in the United States. Some think if we downsize government in a huge way, jobs will spring up like weeds. In the absence of consumer demand and facing exceptionally unstable economic times, downsizing (“austerity”) creates the exactly same kind of GDP-reducing, job-cutting results that have slammed into Europe after European Union leaders – with a huge push from Germany (the EU’s equivalent Tea Party nation) – adopted the same government-downsizing policy.

With most of the EU back into a formal recession directly because of this failed policy, you’d think there would be enough representatives in Congress with the ability to learn from the mistakes of others. Instead they see a Grover Norquist god with a slogan-solution that has consistently proved more harm than good. With government demand taken out of the equation through austerity cuts, less money in the system means a whole lot less cash in the pockets of the vast majority of Americans who work for a living, but the tax cuts and a separate tax code and regulatory system for the top 1% generate an even greater shift of wealth to the top. I guess their 42% of America’s wealth just isn’t enough. Downsizing government in harsh economic times has proven time and again to be a failed policy. It just sounds good to folks who are fact-averse and driven more by myth than reality. Of course there is a deficit to deal with, but we need timing and balance in our approach.

The solution to this increased weighting-of-wealth has always been the upward mobility engendered by post-high school education. Today, for all practical purposes that access to mobility has all but stopped. Even for those at the bottom and the middle who actually make it through that educational system and get a degree, the lack of entry-level jobs combined with the staggering new levels of student loans crushes the income out of their lives in unprecedented ways. What’s worse the rising cost of such schools, well above the inflation rate, was once cushioned by scholarships and grants. Today, most of the burden of heavy tuition has been shifted back to students and their families via student loans, and revisions in bankruptcy codes have made escaping those loans all but impossible.

The above chart (CNN.Money.com, October 24^th) shows the issue clearly. Wikipedia adds this explanation to the mix as well: “During the 11-year period charted, both public and private, nonprofit colleges regularly posted tuition increases well above inflation rates. Peak increases for private colleges were in 1997, after the U.S. economy began booming growth. Peak increases for public colleges were in 2003, after state budgets supporting most of them were crimped by a sharp economic recession. Over this period, annual, inflation-adjusted tuition increases at public colleges averaged 4.0 percent, while those at private, non-profit colleges averaged 3.5 percent. Cumulative results over this period are average public tuitions growing 53 percent above inflation, and average private, nonprofit tuitions growing 47 percent above inflation. As of 2004, private, nonprofit colleges cost on average 3.3 times as much as public colleges attended by residents of their states.” Add a few more years to this analysis, and the 47% and 53% become 60%.

But the real cost of education is not simply a measure of room, board and tuition increases; we also have to factor in the loss of grants and the increase of loans. We should examine the real cost of the distractions to less affluent students who have to work part- or even full-time (and hence cannot study full time) to fund their studies as compared with students who “are covered” by family wealth. If you can dedicate more time to studies, you have a better chance at getting better grades… and better grades… well, you get it. Add one additional factor: many students from poor families (with no prior college experience) lack the familial and community psychological and logistical support found in more established strata. For those who succumb to the financial burdens and drop out before graduating, they get the double whammy of incomplete skills with huge student loans that still have to be repaid.

The December 22^nd New York Times adds these sobering statistics that show how those at the bottom of the socio-economic ladder wind up with increasingly less of the pie: “Thirty years ago, there was a 31 percentage point difference between the share of prosperous and poor Americans who earned bachelor’s degrees, according to Martha J. Bailey and Susan M. Dynarski of the University of Michigan. Now the gap is 45 points…  While both groups improved their odds of finishing college, the affluent improved much more, widening their sizable lead.

“Likely reasons include soaring incomes at the top and changes in family structure, which have left fewer low-income students with the support of two-parent homes. Neighborhoods have grown more segregated by class, leaving lower-income students increasingly concentrated in lower-quality schools. And even after accounting for financial aid, the costs of attending a public university have risen 60 percent in the past two decades. Many low-income students, feeling the need to help out at home, are deterred by the thought of years of lost wages and piles of debt…

“[Students from the higher and lower social classes each] showed the ability to do college work, even excel at it. But the need to earn money brought one set of strains, campus alienation brought others, and ties to boyfriends not in school added complications. With little guidance from family or school officials, college became a leap that they braved without a safety net.

“The story of their lost footing is also the story of something larger — the growing role that education plays in preserving class divisions. Poor students have long trailed affluent peers in school performance, but from grade-school tests to college completion, the gaps are growing. With school success and earning prospects ever more entwined, the consequences carry far: education, a force meant to erode class barriers, appears to be fortifying them… ‘Everyone wants to think of education as an equalizer — the place where upward mobility gets started,” said Greg J. Duncan, an economist at the University of California, Irvine. ‘But on virtually every measure we have, the gaps between high- and low-income kids are widening. It’s very disheartening.’”

As white-bread America slides into a generic minority status in the village electorate, this inequality will dominate our political landscape for the foreseeable future. It is behind every political debate and every election. Incumbents who have want to preserve their way of life without subsidizing those who don’t… even though in the long run having more and better educated/productive consumers puts more money in everyone’s pocket (the mantra of both the IMF and the World Bank). We simply have to figure out how to equalize early education and re-open our post-secondary educational system to all qualified students without requiring crushing and unsustainable financial costs that simply undo the benefits of the education that they should be receiving. This must be America’s biggest priority. Or we may well lose our country.

Without addressing this growing inequality, we are sinking America’s prospects for long-term economic growth and global competitiveness. We are also creating classes of bitter and angry people, digging in their heels and unwilling to find compromise… and there are an awful lot of sophisticated guns out there with way too many people who really do know how to use them. They just need their leaders to point out exactly whom they can blame for their woes, take aim and… Hopelessness and anger are not a good mix.

I’m Peter Dekom, and if we just look at those who have pursued these catastrophic polarizing policies over history, there is no sane reason for us to continue on the self-destructive path we have chosen.