Our Broken Social Contract

The New York Times

THOMAS B. EDSALL

Our Broken Social Contract

By THOMAS B. EDSALL

 JUNE 19, 2013 10:05 PM

Many Americans think that their country has lost its way. But when they try to make sense of what’s happening, they disagree about whether the problem is essentially economic or whether it stems from cultural and moral decay.

Charles Murray, the provocative author of “Coming Apart” and “The Bell Curve,” argues that the cultural insurgencies of the 1960s yanked crucial underpinnings out from the social order and undermined traditional norms of self-restraint, responsibility, family, faith and country. Murray’s latest portrayal of America’s social deterioration focuses on the long-term impact of these insurgencies, notably on a typical, though fictional, working-class community he calls Fishtown. Fishtown is made up of whites who “have no academic degree higher than a high school diploma. If they work, their job must be in a blue-collar, service, or low-level white-collar occupation.”

Murray continues:

Now let us return to the relationship of Fishtown’s decline with America’s civic culture. The decline of industriousness among Fishtown males strikes at the heart of the signature of America’s civic culture — the spirit of enterprise, stick-to-it-iveness, and hard work to make a better life for oneself and one’s children. The divergence in marriage and the rise of single-parent homes has cascading effects. The webs of civic engagement in an ordinary community are spun largely by parents who are trying to foster the right environment for their children — lobbying the city council to install four-way stop signs at an intersection where children play, coaching the Little League teams, using the P.T.A. to improve the neighborhood school. For that matter, many of the broader political issues in a town or small city are fought out because of their direct and indirect effects on the environment for raising children. Married fathers are a good source of labor for these tasks. Unmarried fathers are not. Nor can the void be filled by the moms. Single mothers who want to foster the right environment for their children are usually doing double duty already, trying to be the breadwinner and an attentive parent at the same time. Few single mothers have much time or energy to spare for community activities.

An eloquent description of American social dysfunction comes from my colleague David Brooks, writing about Edward Snowden, who leaked information on domestic surveillance. Brooks argues that Snowden is the product of an upbringing lacking “gently gradated authoritative structures: family, neighborhood, religious group, state, nation and world,” who thus became party to a

rising tide of distrust, the corrosive spread of cynicism, the fraying of the social fabric and the rise of people who are so individualistic in their outlook that they have no real understanding of how to knit others together and look after the common good.

A very different assessment of where and how America has lost its ethical and moral moorings comes from Alan Krueger, the chairman of President Obama’s Council of Economic Advisers. Krueger has argued in two recent appearances, at Oberlin College and more recently at the Rock and Roll Hall of Fame (of all places) that the uncritical worship of the free market in the 1980s allowed the nation’s corporate elite to abandon longstanding constraints in its treatment of labor, especially in shifting the rewards of rising productivity from employees to the owners of capital.

With the blessing of the new right, Krueger argues, corporate America has abandoned its commitment to the commonweal over the past three decades. It no longer honors norms of fairness and equality. To Krueger, it is in the economic sphere that American integrity has been eroded and its ideals corrupted.

At Oberlin, Krueger put it this way:

In considering reasons for the growing wage gap between the top and everyone else, economists have tended to shy away from considerations of fairness and instead focus on market forces, mainly technological change and globalization. But given the compelling evidence that considerations of fairness matter for wage setting, I would argue that we need to devote more attention to the erosion of the norms, institutions and practices that maintain fairness in the job market. We also need to focus on the policies that can lead to more widely shared – and stronger – economic growth. It is natural to expect that market forces such as globalization would weaken norms and institutions that support fairness in wage setting. Yet I would argue that the erosion of the institutions and practices that support fairness has gone beyond market forces.

As the point man for the Obama administration on economic policy, Krueger has become the leading opponent of those who believe that growing inequality and middle-class stagnation are the inevitable consequences of technological innovation and the disruptive force of globalization.

The approach Krueger disputes was succinctly expressed by Greg Mankiw, a Harvard economist who served as chairman of the Council of Economic Advisers in the George W. Bush administration.

In 2006, writing on his blog, Mankiw tackled the factors behind the decline of unions, which once exerted countervailing pressures on corporate giants:

One is globalization. As the economy becomes more open, firms are increasingly operating in competitive markets. This means they have less economic profit that could be a target for unions.

In a 2013 paper, “Defending the One Percent,” Mankiw argues that

changes in technology have allowed a small number of highly educated and exceptionally talented individuals to command superstar incomes in ways that were not possible a generation ago.

Krueger agrees that globalization and technology have been powerful factors in shaping both the job market and the distribution of income. But he makes two points that directly undermine the economic inevitability argument, which is often used to justify the declining share of income going to labor and the sharp rise in income inequality that followed this decline.

First, if corporations are coerced by competition to slash spending, including labor costs, Krueger asks why “corporate profits as a share of the economy are near their all-time high.” Such profits make it particularly “hard to argue that companies do not have the ability to support higher wages.”

Figure 1 from the St. Louis Federal Reserve, hardly a bastion of radicalism, shows that corporate profits as a share of Gross Domestic Product have reached record levels:

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Fig. 1 CreditSt. Louis Federal Reserve

Krueger suggests that the recent surge in corporate profits gives businesses wide leeway – what he terms a large “zone of indeterminacy”— to raise wages and remain solidly in the black.

Krueger’s second point is that rising inequality has not achieved improved productivity:

Productivity growth has not accelerated over the past 30 years; in fact, except for the late 1990s (when inequality narrowed) productivity growth has slowed. If the rise in inequality had improved incentives, one would have expected productivity growth to rise even more quickly, not slow down. Indeed, it is hard to see what the macroeconomy has gained from the enormous shift in the income distribution.

Before the 1980s, C.E.O. pay, according to Krueger, was set with close attention to norms of fairness, so that the range of compensation between janitors and top executives was kept within limits. This “social compact began to fray in the 1980s,” Krueger argued in his Cleveland speech. He provides a chart, Figure 2, showing “how labor compensation has failed to keep pace with productivity growth.”

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Fig. 2 CreditWhitehouse.gov

To further buttress his case, Krueger points out (see Figure 3) that other wealthy countries have experienced the same economic pressures as the United States, but have not seen such sharp rises in inequality.

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Fig. 3 CreditWhitehouse.gov

“The level of inequality varies considerably across these countries,” Krueger said. “The widely differing responses to globalization and technological change suggest that other factors mediate these forces.”

While Krueger’s analysis is very different from Charles Murray’s or from David Brooks’s, all three share an interest in what they see as disintegrating moral norms. And there is something else that binds them: the trends that Murray, Brooks and Krueger deplore continue with unrelenting force. From Murray’s perspective, social decay and irresponsible behavior have spread into the broad working and lower middle class.

Social indicators of conventionally defined moral standards are discouraging: The percentage of children born to unwed mothers has grown from 20 percent in 1984, when Murray published his seminal work, “Losing Ground”, to 41 percent in 2011; the rate among black women has gone from 59 percent to 72 percent, among white women from 12 percent to 29 percent and among Hispanic women 25 percent to 53 percent.

According to the Bureau of Labor Statistics, the work force participation rate among men without high school diplomas has fallen from 77.9 percent in 1983 to 57.9 percent in 2012, and for men with high school diplomas from 90.5 percent in 1983 to 69.6 percent in 2012.

Regarding David Brooks’s lament concerning the “rise of people who are so individualistic in their outlook that they have no real understanding of how to knit others together and look after the common good,” the American Psychological Association has published a paper containing this pithy observation:

“You can look at individual scores of narcissism, you can look at data on lifetime prevalence of Narcissistic Personality Disorder, you can look at related cultural trends, and they all point to one thing,” says W. Keith Campbell, Ph.D., head of the University of Georgia psychology department. “Narcissism is on the rise.”

Or look at the problem from Krueger’s perspective as an economist: since Jan. 20, 2009, the day Obama took office, the Gini index, a standard measure of income inequality, has risen steadily (Figure 4).

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Fig. 4 CreditSt. Louis Federal Reserve

Krueger’s goal of bringing norms of fairness back into the business culture appears not to be taking hold. Emmanuel Saez, the Berkeley economist whose work on inequality is often cited by the Obama administration,released a study in January showing that during the first two years of the current recovery, 2009 to 2011, average family income grew by a modest 1.7 percent, “but the gains were very uneven. Top 1 percent incomes grew by 11.2 percent while bottom 99 percent incomes shrunk by 0.4 percent.” Top 1 percent incomes grew by 11.2 percent while bottom 99 percent incomes shrunk by 0.4 percent.”

Earlier this month, Obama acknowledged America’s uphill struggle on this score.”Too many middle-class families still feel like they’re working harder and harder and can’t get ahead,” he said. “Inequality is still growing in our society.”

If these trends continue, and most evidence suggests they will, one of the central ironies of the Obama years will be that a Democratic administration committed to pushing back against the unjust distribution of resources and to the promotion of morally cohesive communities will in fact have overseen an eight-year period of social disintegration, inequality and rising self-preoccupation.

This is not the legacy the Obama administration wants to leave.