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The Key Obstacle to Restoring the Middle Class

Written on: May 22nd, 2015 in Effective & Efficient Government

By Jack Markell and Jonathan Cowan

Jack Markell, a Democrat, is governor of Delaware. Jonathan Cowan is president of the think tank Third Way.

Looking for an agenda that captures the imagination of our beleaguered middle class? Then solve this puzzle: From 2001 to 2014, the U.S. economy grew at an average annual rate of 1.9 percent — half the rate of the post-World War II boom period — and median household incomes flat-lined. Given that record, how can we double our growth rate and usher in a new era of middle-class prosperity?

Last week, New York Mayor Bill de Blasio (D) sought to answer that question, unveiling what he termed a “progressive contract with America.” As progressives ourselves, we can support many of the things on de Blasio’s list. We should raise the minimum wage, increase access to pre-K programs and find ways to make college more affordable. But the mayor’s proposal doesn’t come remotely close to solving the United States’ growth-and-wage riddle because it ignores the causes of the middle class’s decline.

The principal obstacle to restoring middle-class prosperity isn’t so much that our economic system is fundamentally unfair but that it has fundamentally changed. Let’s remember the past. After two world wars, the United States had so many advantages over the rest of the world that attaining robust, wage-increasing growth was as easy as falling out of a boat. Half of the world operated under a communist economic system that could not compete with us on any meaningful economic scale. Global and economic forces all worked in favor of our middle class. The country grew, and the middle class grew with it.

Not anymore. The United States is still first, but it’s a “look over your shoulder to see who’s gaining on us” type of first. We are part of a global economy where each year it gets easier for employers to locate and hire anywhere in the world. That means we are in competition for jobs with everyone, everywhere. Immense technological innovations have become so commonplace that revolutionary technologies from only a few years ago — such as the BlackBerry and Flip video camera — seem like relics today. These innovations bring enormous opportunities, but they have also transformed many middle-class jobs into digital computations done by computers. That has meant unemployment lines or wage cuts for many middle- and lower-skilled workers, and it has radically raised the stakes on the skills needed to compete for middle-class jobs.

The twin forces of globalization and technological innovations are not about to change, no matter how much progressive leaders yearn for a return to the economy of generations past. Looking ahead 15 years, the world economy is projected to add $61 trillion in new wealth, but only about 13 percent of that is likely to come from the United States. Looking back 15 years, these trends, combined with our slow-growth economy, have reduced typical family incomes from $57,800 in 2000 to $53,900 in 2014 in constant dollars. Our projected economic growth over the next 10 years is predicted to average a lackluster 2.3 percent, according to the Congressional Budget Office — a level that will not be good for wages.

Items such as a minimum-wage increase, pay equity for women and shaving a few basis points off of student loans are worthy and important policies, but they won’t materially solve the wage and growth riddle. Policies that help prepare the United States and Americans to compete in the new economy will.

We can make a huge difference in people’s earning power if we increase four-year and two-year college completion rates by raising standards in our public schools to better prepare students and increasing accountability in higher education. Dramatically modernizing worker training programs can prepare adults for the good jobs of today and tomorrow. Reducing waste in health care and shifting those savings into public investments in infrastructure and innovation will create jobs and opportunities to lift U.S. growth rates. Knocking down barriers to U.S. exports to put “Made in the USA” products on shelves around the globe will boost wages and job opportunities. Reforming our antiquated tax code will entice businesses to locate, hire and expand here rather than abroad. And revamping our retirement system so that every working person has private savings in addition to Social Security will mean a comfortable retirement for everyone.

Nine years ago, Borders Books had more than 1,000 stores and more than 35,000 employees. Four years ago, it liquidated. Those stores didn’t close and those employees didn’t lose their jobs because the economic system was rigged against ordinary Americans. They closed because technology brought us Amazon and the Kindle. Preparing Americans to compete and succeed in this constantly evolving economy is what a contract for the middle class should seek to accomplish. Fairness is certainly important; being ready for the new economy is essential.

Originally posted on The Washington Post

Tags: economic growth, economy, Governor Jack Markell, Jonathan Cowan, responsible government, Third Way