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Friday, September 11, 2020

Book Review: The Vanishing American Dream

William Arnone, CEO, National Academy of Social Insurance

Over Labor Day, I read The Vanishing American Dream, by Gene Ludwig (Disruption Books, 2020). He is Chief Executive Officer and Founder of IBM’s Promontory Financial Group and served as the Comptroller of the Currency during the Clinton Administration. He is a long-time colleague and Promontory was a sponsor of the Academy’s 2013 Ball Award.

The book relates the proceedings of an April 2019 symposium at Yale Law School in which just over two dozen thought leaders, including Academy Members Larry Summers and 2020 Ball Award recipient Jacob Hacker, offered their perspectives on “the economic realities facing middle- and lower-income Americans.”

Jacob Hacker will be honored along with Virginia Reno at our 2020 Ball Award: Campaign for Social Insurance award ceremony on Tuesday, October 13th. Please visit the website to register.

The guiding principle of the symposium, as Gene notes in his preface, was that “(e)very American should have a genuine opportunity to earn a living wage through a job that provides enough income for their family to have food, health care, a good education, some savings, and a solid roof over their heads.”

The American reality, however, is increasingly deviating from that dream, with “the costs of basic necessities – rent, education, and health care [rising] much faster than income among those living nearer the middle to bottom of the wage scale.” In particular, Gene points out that, since the Great Recession, “median wages for Black workers grew more slowly than even a decade earlier.” This disparity illustrates the lack of economic recovery for the vast majority of Americans over the past decade. As a result, “(c)oming into the COVID-19 crisis, consumer debt was at an all-time high, while wealth and liquidity were low.”

The latest crisis has exacerbated the economic fragility of millions. “Mere weeks into the pandemic, all the job gains low- and medium-skill workers had made over the previous decade of recovery had vanished.” Moreover, “Less than a third of upper-income households reported a job loss or a pay cut – but in lower-income households, that figure was slightly more than half.”

Gene defines American exceptionalism as “an economy that gives everyone, including those in more marginalized communities – urban, suburban, and rural alike – an opportunity to give their children a better life than they had growing up.” That is the exceptionalism that we have long been told was ours to claim, but the reality looks more like the inverse – one in which, as Nobel Laureate James Heckman asserts, “advantage begets advantage, and disadvantage begets disadvantage.”

Inequality: Widespread Concern

Gene notes that the “chasm between the people thriving in today’s economy and those unable to get ahead has been widening for far too long.” He fears that, “(l)eft unaddressed, the challenges…could undermine both America’s system of free enterprise and our democratic institutions.” A similar concern was voiced by Peter Georgescu in his keynote presentation at our Academy’s annual policy conference in January 2017.

Most of the symposium’s participants agreed on “the underlying problem – namely, the increasing misery and despair felt by people in various pockets of America.” Jacob Hacker noted: “We have seen not only rising inequality across individuals but rising inequality across regions.” Gene adds: “If these trends continue, the suffering will not be contained to those currently affected – it will inevitably grow to encompass more of the American population and spread even to healthier portions of the economy.”

As Washington Post columnist Steven Pearlstein stated: “The result has been…an unacceptable increase in inequality of income and wealth and therefore opportunity, which has polarized our politics and rendered our government dysfunctional to the point that it now threatens our prosperity and our democracy.”

In short, as Gene notes: “Economic inequality is at a breaking point, and it’s a risk to the broader economy.” It also threatens the essence of the American dream, i.e. that “middle- and lower-income people can improve their circumstances regardless of where they began.”

Potential Solutions: Lack of Consensus

The book summarizes the wide-ranging and provocative discussions of several symposium panels. As expected, however, the symposium produced little agreement on policy solutions.

For example, Gene also calls for the elimination of employee and employer contributions to finance Social Security, asserting that “the payroll tax has become perhaps the most regressive element of the federal code – a charge on work that targets those in the working and middle classes.” He suggests replacing it with “a carbon tax, a value-added tax, an energy inefficiency tax, or really any other key levy that doesn’t penalize work.”

However, this suggestion changes the core social insurance design of Social Security. Academy Board Chair Bill Rodgers and I recently addressed this notion in response to the Trump Administration’s FICA deferral executive order.

Another example: Few supported the “guaranteed minimum income” concept, which is one of the policy options being analyzed by our Academy’s current Economic Security Study Panel.

Coming Soon: A Compendium on Social Insurance and the Pandemic

Although the Yale symposium took place before the COVID-19 pandemic hit, Gene’s preface was written after the pandemic struck and does take note of its devastating economic impact – impacts that exacerbated the economic inequalities reported in the book and resulted in increased attention to the vanishing American dream.

As part of our 2020 Ball Award Campaign for Social Insurance, the Academy will soon be issuing The Future of Social Insurance: Insights From the Pandemic. This is a compendium of essays by all fourteen living former Ball Award recipients, edited by Academy Senior Fellow Tom Bethell. The compendium is a compelling collection of provocative reflections on key aspects of social insurance in today’s world of nearly unfathomable economic and health catastrophes.

Stay tuned for more details of the compendium’s release.

Posted on September 11, 2020  |  Write the first comment
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