The Devil's Bargain of a Long Boom
By David Heilbroner
Drive through Boston and along its dual beltways of business, Route
128 and I-495, and you pass some of the largest and most formidable names
leading the charge into the next millennium. Financial giant Fidelity Investments,
info-tech media leader International Data Group, and Thermo Electron Corporation,
an agglomeration of advanced equipment manufacture. Medical devices maker
Boston Scientific Corporation, information storage powerhouse EMC Corporation,
Internet conglomerate CMGI, and on and on. The sleek offices gleam above
lots crowded with BMWs and Lexuses. Here, you can feel the future crackling
with the promise of prosperity.
And why shouldn't it seem that way? The Roaring Nineties routinely takes
billing as the decade that brought us a Dow of 11,000, overnight IPO multimillionaires,
all-time-high home ownership, and the lowest unemployment in decades. President
Clinton touts it as the greatest economic expansion in our history.
But go further, beyond the glitter of cutting-edge Boston, and you find
a parallel world beyond the spotlight-cities like Everett and Brockton,
Lawrence and Worcester. There, houses need painting, people work long hours
at minimum-wage jobs with little prospect of advancement, and the economic
vitality energizing other areas seems just a rumor. These communities feel
not just miles, but light years, away from the wealth of Beacon Hill, Belmont,
and Weston.
There have always been rich and poor in America, of course. But the
disparities among these class-bound boroughs of eastern Massachusetts,
and among others like them around the country, seems glaring. Is this some
trick of perspective, an illusion? Aren't these the best of times for America-and
aren't they expected to keep on rolling, eventually bringing good fortune
to all?
A cross-section of N.U. faculty agrees that the United States has undergone
a phenomenal economic expansion, one that promises to continue for years
to come. But economic justice-that is, the fair distribution of all that
new wealth across class and racial lines-remains another matter. Indeed,
these same economic optimists paint the present situation as a highly threatening
tableau. We've made a devil's bargain with Wall Street in the 1990s, they
warn, and if we don't change the terms of the deal soon, we will have to
pay dearly in the 2000s. that life will improve-should improve, must improve-is
a fundamental ideal of American society. And, for many Americans, for much
of our nation's history, it has been true. It powers immigration today,
just as it powered the continent's settlement; it underlies a national
optimism. At certain times-the decades following World War II, for example-the
virtue of improvement has taken on a tinge of perfectibility. The books
and magazines of the 1950s and '60s augur nuclear powered homes with labor-saving
appliances, electric cars, inexpensive spandex clothes that would never
need ironing, and frozen food that would keep forever, and a society in
which everyone is better off.
Indeed, material progress has been great over the last fifty years in
America. But it took only a few decades of actually eating frozen food
and wearing spandex for people to realize that the future might be different,
but it wouldn't always be better.
Looking into the glass of the twenty-first century, prognosticators
face a similar conundrum. We have enjoyed the longest economic expansion
in history, bringing immense wealth into the private sector. But have the
soaring Dow Jones Industrial Average and NASDAQ Composite Index made the
average citizen better off? And, more to the point, will future economic
benefits be shared in a way that accords with a fundamental sense of justice?
Before we can predict where we are headed, it's important to take present
bearings. Economics professor Andrew Sum, director of N.U.'s Center for
Labor Market Studies, has spent years tracking the distribution of wealth,
measured by how much people at different social levels get paid for their
work. Sum concludes that "in almost every state and region, you find
a tremendous growth in economic inequality. There are a very small number
of extremely well-compensated employees at the top, with a large number
of poorly organized, not-so-well-educated people at the bottom." And
the disparity in compensation is growing. Put another way, the rich are
riding a tidal wave of wealth while everybody else treads water.
According to Sum's data, the economic sector where such inequality is
most pronounced turns out to be the service industries: entertainment and
retail, along with banking, biotech, software, and mutual funds. Service
accounts for nearly half of all jobs nationwide, and in this sector the
top twenty percent take half of total earnings.
If that sounds unfair, Sum has some even more sobering statistics: service
is also the fastest-growing sector of the economy, and the bulk of these
new positions are so-called labor-leasing jobs, in which there's no unionization
and no prospect for advancement. In other words, unemployment may be low
across the nation, but only because we've created a lot of dead-end, low-wage
slots. It's a situation geared to raise stock prices, but also guaranteed
to exacerbate disparities in the distribution of wealth.
Few members of the Northeastern faculty have been more daringly vocal
on this phenomenon than Barry Bluestone, the Russell B. and Andrée
B. Stearns Trustee Professor of Political Economy and the founding director
of N.U.'s new Center for Urban and Regional Policy. In his just-released
book, Growing Prosperity: The Battle for Growth with Equity in the Twenty-First
Century (coauthored with Bennett Harrison), Bluestone looks at how we've
handled our economic expansion, and asks whether the government's stewardship
is having the ultimate effect of further dividing the population into very
rich and very poor.
Federal Reserve chairman Alan Greenspan has long made clear that he
favors a policy of slow growth with no inflation. (As dizzying as the pace
of U.S. economic expansion has seemed during recent years, it has never
exceeded 5 percent, thus qualifying as moderate growth by macroeconomic
standards.) If the economy starts to expand at a rate above 2.3 percent,
Greenspan slams on the brakes by raising interest rates, making it more
costly to borrow money for new business ventures, homes, purchases, and
so forth. So long as inflation stays in check, the Greenspan model promises
to give our current economic expansion enormous longevity.
The problem, as Bluestone conceives it, turns on the historical fact
that only when the economy has grown faster-say, at a rate beyond five
percent a year-have wages at both ends of the economic spectrum risen.
In the postWorld War II period, real wages actually increased faster
than did the accumulation of wealth by the richest ten percent. Never was
there a more golden age for the U.S. when it came to improving the working
family's lot.
To continue the current policy of prolonged moderate growth without
inflation, Bluestone warns, will simply give us more of what we've already
experienced: a massively lopsided distribution of wealth. The current good
times, in this view, allow the rich to prosper, but only at the expense
of financial equity-a fundamental devil's bargain.
And like most devil's bargains, what you get up front isn't even all
that wonderful. Indeed, Bluestone contends that the current good times
are substantially overrated. Despite the economic growth of the 1990s,
he says, we actually are living in an age of diminished expectations. Just
making ends meet requires both spouses in a family with children to work.
Fewer and fewer Americans can afford health insurance. A college education
has become a fearsome financial challenge. Few politicians any longer speak
of helping people unable to surmount these financial hurdles; we're all
too busy just getting by.
None of these harsh realities was true just thirty years ago, Bluestone
notes in Growing Prosperity:
During the glory days [from the close of World War II to the 1970s]
when employment growth was strong and real wages were rising rapidly, it
was not difficult to convince the American people that the federal government
should provide more for those who could not care for themselves. We could
mount a War on Poverty and willingly spend hundreds of billions of dollars
on it. President Kennedy's plea that we should 'ask not what our country
can do for us, but what we can do for our country' was much easier to sell
politically when the economy was booming than it would be later, when families
suffered a quarter century of stagnating incomes and growing job insecurity.
Only when times are extraordinarily good, Bluestone argues-that is,
when real wages rise along with the stock market-can such altruistic national
sentiment be possible. That is clearly not the case today. The average
employee is pinched, overworked, and unsure about job security, all while
the rich pile mountains of cash ever higher. But no presidential hopeful,
apart from Warren Beatty, seems ready to challenge the prevailing myth
that these are great good times. what is likely to happen if these trends
remain unchecked?
Jack Levin, the Irving and Betty Brudnick Professor of Sociology and
the director of the Brudnick Center on Violence and Conflict, is making
some dramatic, and chilling, predictions. Levin is a criminologist, versed
in the nexus between economic forces and antisocial behavior in all its
various manifestations. Levin begins with a fundamental premise: that the
good times always end. "Inevitably there will be a recession, even
a depression, and having income inequality at an all-time high creates
a potentially explosive situation," he says. "When our economy
takes a nosedive, watch out. There are going to be a lot of disappointed
people."
A recession would be the rudest of awakenings to families who have pinned
retirement or college hopes on an ever growing economy. Levin offers a
criminologist's catalog of horrors gleaned from past economic hard times.
"In the early 1990s, for example, we had an epidemic of downsizing.
And the middle-aged men who got fired, fired back with AK-47s. These were
the 1950s'60s baby boomers who grew up with a sense of entitlement
to job security that no longer applied to American life. That's when the
phrase 'going postal' was born.
"If you go back to the 1980s, when we had the deepest recession
since World War II, we saw dramatic growth of the civilian militia movement.
It's not a coincidence that this was a time when ranchers, miners, and
farmers were being put out of business. They felt the government wasn't
taking care of them anymore, that the government was the enemy."
Levin believes many people have been lulled into a false sense of security
that the current economic boom will go on forever. "I would predict
that the next recession will be a lot less kind and gentle. Think of how
the gross disparity in income will look in a recession. Add to that the
growing number of minority teenagers raised in poverty, and there's a potential
powder keg. If we're not careful and take into account the possibility
of bad times ahead, we might be faced with another epidemic of killing
sprees, marginalized Americans joining militia groups, and a major reemergence
of teenage violence in our big cities. Because, remember," Levin insists,
"the countries with the greatest income inequality have the highest
crime rates."
Bluestone concurs: if the current economic and political policies don't
change, he says, "we might expect to see gated communities that become
ever more gated. Crime would be higher and the racial climate would deteriorate,
along with growing resentment of immigrants and new ethnic groups."
These dire predictions are particularly striking in light of crime statistics
that continue to plummet across the country. But people close to the poorest
communities are already sending out warning signals about what might happen
if the great Greenspan expansion starts to shrink.
Law professor Deborah Ramirez sees the potential for real trouble on
the streets. She works in downtown Boston with a group of African-American
doctors and ministers called the Ten Point Coalition, who have joined with
Boston's police department to fight crime at its root.
"I work with those at the bottom of the economic well," Ramirez
says. "Even this economic boom has not lifted their ship. What'll
happen in a recession? There's the potential for explosive confrontations
over race."
Part of the problem, as she sees it, turns on a misunderstanding of
just how bad off her constituency remains, despite the great boom.
"Sure, we've got this great unemployment rate, but we also have
the highest rate of incarceration in the world, and prisoners are not counted
in the unemployment numbers. So you see, the health of our economic statistics
doesn't really portray what's happening in people's lives."
And getting help for at-risk individuals isn't easy, Ramirez says. Not
with a political system that favors protecting the well-to-do over helping
the needy. "If you try and get tutoring, anti-truancy programs, and
mentoring for at-risk youths, you can't get funding, except through the
police as a 'crime-fighting tool.' Meanwhile, the police are enormously
well-funded. They've got computers and high-tech gear, and everything they
could possibly want-politicians can't write checks fast enough. Remember
Clinton's promise to put 100,000 more cops on the street? What does this
say about us as a society?"
Ramirez has a ready answer to her rhetorical question: "It says
that politicians can't have an honest discussion about dealing with the
human cost of our economic policies except through jail." the unseemly
reality of the 1990s "success" is that eighty percent of increased
wealth in the last few years came from the stock market. Our economic boom
disproportionately benefits those with enough ready cash to invest in mutual
funds, open a brokerage account, or live off executive bonuses and stock
options. Sociology professor Thomas Shapiro, recipient of a Ford Foundation
grant to study the effect of family financial assets on school choice,
refers to this phenomenon as "asset inequality." He sees it as
"the largest issue in economic justice in the new century."
Just how far out of reach is the stock market, this engine of our prosperity,
to the average American? Shapiro points out that a third of American families
have no financial assets beyond a home or a car. Among African-Americans,
the number doubles to two-thirds. By this measure-his "asset poverty
line"-our country is headed at a breakneck pace toward a vast polarization
of wealth. "The levers around inequality," he says, "continue
to pry that gulf open even further."
Add to this the political exhaustion of the welfare state, Shapiro warns,
and inequality will soon get even wider. Class divisions and race divisions
will solidify, and white flight will once more turn inner cities into crime-ridden
slums.
In this charged new climate, who will work to close the social tears
created by economic inequity?
Rae Andre, a business professor specializing in human resource management,
has spent years studying the work habits of Americans in professional settings,
and she has charted many new negative effects in the 1990s. Workers can
no longer trust their employers to take care of them and so must continually
prove themselves, creating ongoing insecurity. As a consequence, the average
workweek has grown to forty-nine hours, while social activism and community
work have, of necessity, sunk to new lows. There's no time or energy left
for helping others.
Seen in this light, our age is indeed one of diminished expectations.
The optimism of the 1950s has been eroded, so that we now treat the idyllic
vision of the single-earner family in a stable job with a busy community
life as a dream from which we have awakened.can the dream be recaptured?
or will america divide into islands of wealth surrounded by an ocean of
hostile poverty?
Ironically, Barry Bluestone turns out to be anything but a pessimist
when it comes to the possibility of change. In his view, "many of
the elements needed for an economic renaissance [are] coming together."
He argues, however, that such a scenario will never come to pass if current
economic policies aren't fundamentally changed.
Bluestone makes the case that to increase real wages and thereby raise
the fortunes of the poorest classes along with the richest, we must allow
economic growth to boil over. Rather than viewing the limit of growth as
a modest 2.3 percent, as currently advocated by Greenspan, Bluestone contends
that permitting a huge economic boom would have precisely the same effect
on financial equity in the coming decade that it did in the postWorld
War II expansion. Real wages would rise, the disparity between income groups
would shrink. In relative and absolute terms, the average American would
become better off.
Thomas Shapiro advocates a sweeping, new national asset-based economic
policy. "Savings is a point in common between liberal and conservative,"
he says. In particular, Shapiro champions IDAs, or Individual Development
Accounts. "IDAs encourage savings with a government-matched premium,
sometimes as much as eight times the principal invested by the recipient,"
he explains. "The accumulated funds must then be spent on such mandated
expenditures as homes or home repair, education, and business development."
This, he hopes, would provide the necessary leverage that those below the
asset poverty line need in order to pry open the doors of opportunity once
again.
The problem, Shapiro admits, is that "there's not a coherent social
movement around asset-based policy." Indeed, economic priorities hardly
feature in current presidential debates. Educating the public about the
reality of economic planning remains a daunting and politically unpalatable
task. With proper policies like IDAs, Shapiro says, "poverty will
be greatly reduced. And for young couples in particular, this can be a
real springboard to a better life." But few leaders challenge the
belief that these are the best of times.
Bluestone shares the belief that Americans must be educated in the dismal
science of economics if we are to avoid a social meltdown in the coming
decades. "Clinton has been a total zero when it comes to explaining
any economic principles to the American people," he says. "So
I've planned to spend a good portion of next year going everywhere and
anywhere I can to raise these issues."
How hopeful is Bluestone about achieving his goals? Like many of his
colleagues, he feels uncertain. Part of his reservation comes from understanding
that America has become a feel-good culture, which makes selling voters
on the notion of impending crisis difficult. Politically or otherwise,
poverty doesn't play in Peoria as well as palliatives about America's success.
"We worship success and wealth," he laments, "and precious
little cuts against that mentality." The illusion of present good
times may be simply too beguiling to dispel with a cold dose of reality.
David Heilbroner, L'84, a freelance writer in New York City and
a regular contributor, wrote "Winterland," an original short
story in the March 1999 issue.
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