The Forgotten Americans: An Economic Agenda for a Divided Nation

250 Pages·2018·4.6 MB·English

by  Isabel Sawhill

THE FORGOTTEN AMERICANS
ISABEL SAWHILL
The Forgotten Americans
AN ECONOMIC AGENDA FOR A DIVIDED NATION
Published with assistance from the foundation established in memory of Amasa Stone Mather of the Class
of 1907, Yale College.
Copyright © 2018 by Isabel Sawhill. All rights reserved. This book may not be reproduced, in whole or in
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Library of Congress Control Number: 2018942605
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CONTENTS
Preface
1 Introduction
2 The Forgotten Americans
3 What Went Wrong?
4 Why Economic Growth Is Not Enough
5 The Limits of Redistribution
6 A GI Bill for America’s Workers
7 Creating Jobs and Rewarding Work
8 A Bigger Role for the Private Sector
9 Updating Social Insurance
10 Conclusion
Notes
Index
PREFACE
LIKE MANY PEOPLE, I WAS DUMBFOUNDED by the 2016 election. I began working on
this book before the election and then had to rethink it afterward. Who was it
that voted for Trump? What is it about their lives that caused them to vote for
him? And, most importantly, what should an economic policy look like in the
post-Trump era? I began to question old assumptions about what might be both
effective and politically feasible in this new era, which required that I reexamine
almost everything I thought I knew. Can we boost the rate of long-term
economic growth enough to make a lot of people better off, or is that a pipe
dream? Are unprecedented levels of inequality here to stay, or can we
redistribute whatever level of prosperity we have more broadly? How do we
achieve a broader version of prosperity in today’s toxic political environment?
What might work best, given the country’s attitudes and existing institutions?
This book wrestles with these questions. It argues for policies that are better
aligned with American values and responsive to people’s actual day-to-day
needs. It focuses on the value of work and the importance of jobs and wages.
Work is a unifying concept, something everyone understands and supports. But
we need a more honest accounting of what does and does not improve people’s
job prospects. That means getting beyond simple “trickle-down” and “trickle-
up” theories and political rhetoric about their importance. In late 2017, Congress
enacted a giant tax bill sold to the public in trickle-down clothes. On the left,
there was talk of the need for a universal basic income where income would
almost magically trickle up to literally everyone. Those are, for the most part,
fake remedies. Instead, we need to better prepare people for the jobs that exist
and use the tax system and a more inclusive form of private-sector–led
capitalism to boost the job opportunities and wages of the bottom half.
Although I am a solutions-oriented economist, I like to ask basic questions,
review evidence on what we know about them, and guide the nonacademic
reader through the underbrush and the data to a set of hopefully reasonable
conclusions. In the process, I learn a lot. My hope is that readers with a serious
interest in such topics as growth, inequality, and the labor market will benefit
from this review. Whether one agrees with my ideas or not, their foundations
should be transparent—the basis for a healthy dialogue.
should be transparent—the basis for a healthy dialogue.
On a more personal note, I have long believed that life is unpredictable and
often unfair. For this reason, much of my career has been devoted to studying
poverty and inequality. More often than not that leads to a focus on the poorest
Americans. But just above them is a group that believes it is playing by the rules
and not getting ahead. Of course, the poor deserve compassion but they have
gotten plenty of scholarly attention. The working and middle classes have
received less. All of them are part of a group I call “the forgotten Americans.”
I have also focused a lot of my work on opportunity—on what scholars call
“intergenerational social mobility.” Together with my colleague Ron Haskins, I
wrote a book on Creating an Opportunity Society. We developed and have
jointly written about “the success sequence”—the idea that if you get an
education, work fulltime, and wait to have children until you are married or in a
committed relationship, you will have a good chance of escaping poverty and
joining the middle class. In my most recent book, Generation Unbound: Drifting
into Sex and Parenthood without Marriage, I tackled the family piece of the
success sequence, calling for a shift in norms and for greater use of long-acting
forms of contraception to produce more responsible parenting and family
formation. In this book, I focus on work. If I stick to the “success sequence”
frame, my next book will have to be about education!
I have the good fortune to have had a long career as a scholar at the
Brookings Institution. I work with some of the smartest and best-informed
people imaginable—a rare privilege. As an economist who has served in
government, and been on the firing line for making difficult decisions in
President Clinton’s Office of Management and Budget, I take a pragmatic
approach to most problems. I am no fan of President Trump but still hope that
Republicans will reach out to that broader slice of America they seem to have
forgotten of late, despite the president’s rhetoric. Their messaging is fine; their
policies are wanting. As for Democrats, I admire their fighting spirit and their
compassion but believe there is a risk that they will overplay their hand, pleasing
their base but neglecting the moderate but quiet middle that wants stability,
pragmatism, and dignity in public life, not a new swerve to the left.
I have many people to thank for help with this book. First and foremost is
Eleanor Krause. She was my research assistant at Brookings through this period.
I have marveled at her patience, her work ethic, her ability to see long before I
did the many flaws in the book (some of which, I’m sure, remain), and her
willingness to tackle almost any subject and master it in short order. In her spare
time, she climbs cliffs and rides a bike in zero-degree weather. Nothing is too
hard for her.
Richard Reeves, Alice Rivlin, and Robert Reischauer all gave especially
Richard Reeves, Alice Rivlin, and Robert Reischauer all gave especially
generously of their time to help me see ways to improve the manuscript. Richard
proved that it’s possible to teach an aging scholar how to write or think more
clearly. Other colleagues to whom I am grateful for advice on the book include
Henry Aaron, Martin Baily, Ben Bernanke, Emily Bowden, Elaine Kamarck,
Gary Burtless, Bill Galston, Ted Gayer, Carol Graham, Josh Gotbaum, Ron
Haskins, Delaney Parrish, Jonathan Rauch, Molly Reynolds, Martha Ross, and
David Wessel.
Outside of Brookings, I received valuable comments from Dominic Barton,
Harry Holzer, Elisabeth Jacobs, Tamar Jacoby, Robert Solow, Steven Pearlstein,
Christopher Schroeder, Ben Veghte, and the “Gang of 10,” my favorite group of
business economists.
Many family members and friends have also read or suffered through
interminable discussions of very early drafts of this book. Among this group, I
especially want to thank David Adoff, Sarah and Win Brown, Monroe and Fred
Hodder, Bob and Jane Stein, Sally and Ed Supplee, Hildy Teegen, and Jamie and
Evelyn Sawhill.
Finally, I want to thank Seth Ditchik at Yale University Press for giving me
the right advice when I needed it most, and Adriana Cloud, Ann-Marie
Imbornoni, and Debbie Masi for careful attention to the copyediting and
production of the manuscript.
My goal for this book is very simple: to catalyze a new discussion about how
to create a jobs-based prosperity and a less-divided nation in the coming
decades. Although I offer some specific ideas as fodder for that discussion, if
these ideas do no more than catalyze a richer debate, and some still better ideas,
I will be pleased.
THE FORGOTTEN AMERICANS
1
Introduction
WHEN RONALD REAGAN WAS CAMPAIGNING for the presidency in the 1970s, he
regularly referred to a Chicago welfare recipient who, Reagan said, had bilked
the government of $150,000. “She has 80 names, 30 addresses, 12 Social
Security cards and is collecting veterans’ benefits on four nonexisting deceased
husbands,” he said.1 Although fact-checking showed that Reagan was
exaggerating, the story resonated with the public, so he repeated it over and over
again. Thus was born the idea of a “welfare queen.”
Bill Clinton, although far more sympathetic to the poor than Ronald Reagan,
campaigned on “ending welfare as we know it.” He wanted welfare to be a way
station and not a way of life. His stance was so popular that when I joined his
administration in 1993, my top assignment was to help craft a plan to reform
welfare. It became a bipartisan issue, and in 1996, Congress voted to turn the old
unconditional cash welfare program into a new and temporary program that
required recipients to work.
But welfare is not just for the poor. The rich get welfare as well. When
someone dies and gives a large bequest to his or her children, the inheritance is a
windfall, an often large and unearned gift for the recipient. The tax bill enacted
in 2017 only taxes such bequests if an individual decedent has more than $11
million and a couple has more than $22 million.2 That bill ballooned the nation’s
debt and provided most of its benefits to corporations. Some commentators
looked at the new law and labeled it a reward for wealthy donors and special
interest groups.
There is nothing new about corporate welfare. Oil companies and ethanol
producers receive large and mostly unwarranted subsidies.3 Big Wall Street
banks were rescued while equity in people’s homes was wiped out during the
financial crisis. Corporate tax reductions fatten profits earned from past, not
future, investments. Rising rates of concentration are limiting competition and
increasing control over prices in many industries, leading to supernormal