Weighing increased per capita income against rising inequality, insecurity, burdens of work, and environmental degradation.

BY ZOE SHERMAN | November/December 2014

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the November/December 2014 issue.

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In 1980, Ronald Reagan, trying to defeat Jimmy Carter’s bid for a second term as president, asked, “Are you better off than you were four years ago?” A conservative turn in American politics was already underway and, campaigning on that question, Reagan rode the wave into the presidency. Forty years into the political epoch he symbolizes, and forty years into this magazine’s history, we might well echo Reagan’s question: Are you better off than you were forty years ago?

It is a deceptively simple question. What would it mean to be better off? Probably a lot of good things and a lot of bad things have happened to you in forty years (or however many of those years you’ve been alive) and to decide whether you are better off you would have to do some weighing. For many of us the final answer would be, “well, yes and no ... ” For any one person many of the then-vs.-now differences are largely a matter of the life cycle—maybe you were a child decades ago and an adult now. It really makes more sense to ask whether we as a society are better off that we were forty years ago.

The well-being of a society cannot be measured in a single dimension any more than a single person’s well-being can. Assessments of our national well-being often begin—and too often end—with gross domestic product (GDP). Per capita GDP basically answers the question, “Are we collectively, on average, richer, as measured by the dollar value of the things we produce and sell to one another?” (This includes the government’s provision of goods and services, even if they are not really “sold.”)

Not only is GDP limited to measuring just one dimension of well-being—it doesn’t even measure that dimension all that well. It fails to count the work we do for one another at home or in other non-monetized ways. It gives us only an aggregate with no information about how access to all those goods and services is distributed. And goods and bads get added together so long as they cost money and therefore generate income for someone—that is, a thousand dollars spent on cigarettes and treatments for emphysema add just as much to GDP as a thousand dollars spent on healthy foods and preventive medicine.

We’ll certainly want to go beyond just GDP per capita, as we take a tour through various dimensions of well-being and take stock of how we have progressed or faltered since the first issue of this magazine came out in 1974.

Income and Stuff

Though we know from the outset that we will not stop here, we may as well start in the traditional starting place: Changes in our national income, taking into account population growth and inflation. Real per capita GDP was $25,427 in 1974 (in 2009 U.S. dollars) and now it is almost double that at $49,810. A lot of that GDP growth represents more of the good stuff we already had in 1974 or cool, well-being-enhancing new stuff that we have now but didn’t have then. I really like having a dishwasher and enough dishes that we don’t have to wash the plates and forks after every meal (more of the already-invented good stuff). I am also awfully fond of my computer, Internet service, DVDs, and streaming video (cool new stuff).

But some of the higher production/higher income measured by GDP represents not-so-great things. Longer car commutes, for example, are costly and contribute to GDP through spending on gasoline, car repairs and replacement, and purchases of more cars per household. But long car commutes add nothing and likely subtract from the commuters’ well-being. They also add pollutants to the air that affect us all.

Even if we subtract out the bads, the goods themselves can get to be too much of a good thing. Plenty of people know the experience of feeling that they are choking on stuff, crowded out of their living spaces by their belongings. Self storage ranks as the fastest growing segment of the commercial real estate industry since 1975. Self storage businesses brought in revenues of $24 billion dollars in 2013. Now, consider that the average size of a new single family home increased 57% from 1970 to the early 2000s. That means we spent $24 billion to store the things that we can’t fit in our homes, even though many of our homes are bigger than ever! (See the interview with Juliet Schor in the September/October 2014 issue for a discussion of how we get trapped in this self- destructive overconsumption cycle.)

Economic and Social Inequality

Narrowing Race and Gender Gaps

The Civil Rights Movement, which achieved many of its judicial and legislative successes between 1954 (Brown v. Board of Education) and 1965 (Voting Rights Act), and the Women’s Movement, whose judicial and legislative successes followed soon after (Title IX in 1972; Roe v. Wade in 1973) have reduced the role of outright, explicit discrimination. This is no small matter. Yet there are still wide gaps between white and nonwhite, especially black Americans in measures of economic well-being, and also gaps between men and women of all races.

The resources that would close the racial income gap are hard for individuals and families to come by. There is a strong correlation between educational attainment and future earnings, but black children on average get less from their public schools than white children get. The racial income gap has narrowed slightly between 1974 and now, but the median white household still has more than six times the wealth of the median nonwhite or Hispanic household. Low wealth reduces nonwhite families’ ability to buy housing in better-funded public school districts or invest in college education—or in private K-12 substitutes if the public schools available to them are sub-par.

People with criminal convictions, once released, face enormous barriers to employment. For the more than one-in-six black men who have been incarcerated (a rate six times that for white men), a criminal record consigns them to the margins of the labor market. In some states, moreover, a felony conviction results in a permanent loss of voting rights and therefore the loss of one of the most powerful tools for political change.

The story for the gender gap in economic well-being is mixed. Women earn lower average incomes and suffer higher poverty rates than men (despite now graduating from college in greater numbers than men). But the female unemployment rate is, on average, lower than for men, and it has become less volatile; in the last few business-cycle downturns men have been more at risk of job loss than women.

If the distribution of income had remained roughly the same over the last forty years, then the fact that per capita GDP nearly doubled would mean that everyone’s income had nearly doubled. That’s not what happened. Instead, those at the top of the income distribution have vastly more income than 40 years ago while those at the bottom have less. The real income of a household at the 20th percentile (above 20% of all households in the income ranking) has scarcely budged since 1974—it was $20,000 and change then and is $20,000 and change now. For those below the 20th percentile, real income has fallen. The entire bottom 80% of households ranked by income now gets only 49% of the national pie, down from 57% in 1974. That means that the top 20% has gone from 43% to 51% of total income. Even within the top 20%, the distribution skews upward. Most of the income gains of the top 20% are concentrated in the top 5%; most of the gains of the top 5% are concentrated in the top 1%; most of the gains in the top 1% are concentrated in the top 0.1%.

By 1974, labor force participation rates were in the midst of a marked upward trend, driven largely by the entry of women into the paid labor force. Starting from a low of 59% in the early 1960s, the labor force participation rate passed 61% in 1974 and peaked at 67% in the late 1990s. Labor force participation has drifted back downward somewhat since then through a combination of baby boomer retirement and discouraged workers giving up on the labor force since the crisis that began in 2007, but it remains at 63%, still higher than in 1974. That means that even while more of us are participating in market work, the market is concentrating its rewards in a shrinking cabal of increasingly powerful hands.

More of us are working, but the share of national income that goes to ordinary workers is smaller. National income can be sorted into categories based on the route it takes to a person’s pocket. One category of income—wages and salaries earned in return for work—is labor income. The other categories—profit, dividends, rent, interest—are all forms of income that result from owning. For many decades, the labor share of national income held fairly steady, but beginning in the mid-1970s it started falling. Economist James Heintz found that the share of the national income earned as private-business-sector wages (excluding executive compensation) fell from 58% in 1970 to 50% in 2010; the share that went to non-supervisory workers fell from 45% to 31%. Even as hourly pay for a broad swath of people in the middle—between the 20th and 80th percentiles—has just about kept pace with inflation, the traditional tickets to the middle class have become more of a reach. Rising costs of higher education and housing have consigned many to a near-permanent state of debt peonage to maintain a tenuous grasp on middle-class social status, while others are blocked from access entirely.

While more employers now require a college degree before letting a job applicant set foot on the bottom rung of the career ladder, college tuitions have risen more than three times as fast as inflation since 1974. The total volume of outstanding student debt has passed $1 trillion—greater than even the volume of outstanding credit card debt.

Housing, too, has become more unaffordable. For white people who bought houses in the mid 20th century with the benefits of supportive government policies, a home was a secure form of both savings and shelter. (Discriminatory neighborhood redlining prevented most nonwhites from enjoying these benefits.) Within recent decades, however, home prices have risen faster than median incomes and deceptive lending practices trapped many home-buyers in unaffordable mortgages. For those who were lucky, and bought and sold at the right times, the housing bubble was a windfall. For many more, the home has become a millstone of debt and the threat of foreclose has rendered shelter uncertain.

The division of the national income pie may be more skewed, but do we all have an equal shot at finding our way into the charmed circle of plenty? The probability that a person who starts out in the bottom income quintile will make it into the top quintile has stayed remarkably constant since the mid twentieth century. A child born in the bottom quintile in 1971 had an 8.4% chance of making it to the top quintile; for a child born in 1986, the probability is 9.0%. Our national mythology notwithstanding, mobility is lower in the United States than in other comparably developed economies.

Now for some good news: although wealth and income disparities have worsened, we have made real strides in reducing disparities based on race and gender. Long-standing identity-based hierarchies have weakened, though they certainly have not disappeared. The narrowing of race and gender gaps in economic well-being owes everything to the social movements of the twentieth century. The gaps’ persistence can be attributed both to differential impacts of ostensibly race- or gender-neutral policies and to our low levels of social mobility. The war on drugs and other “get tough on crime” policies really mean the mass incarceration of black men. “Welfare reform” withdrew much of whatever limited support there was for the intense labor—mostly women’s—of raising children with minimal cash resources. Even as bigotry, in several forms, has lost explicit government sanction, the lack of social mobility casts the shadow of the more explicit inequities of the past longer and deeper. (See Jeannette Wicks-Lim, Why We All Need Affirmative Action, on how the exclusion of black people from high social-status positions perpetuates second-class citizenship.)

Not only is income unequally distributed, it is also, for many, insecure. Having income is a good thing and helps to meet present needs. If there’s some left over, present income might even help meet future needs. But confidence in future income matters to us a lot. We worry about whether we will be able to meet our needs tomorrow—and we have more reasons to worry now than ever.

Employment is a sometime thing: Workers on short-term contracts—like the majority of undergraduate college instructors who work on an adjunct basis—and the self-employed, whose income is also unpredictable, add up to 30% of the U.S. workforce with uncertain, episodic income. (See Gerald Friedman, “The Gig Economy,” D&S, March/April 2014.) It is difficult to know exactly how the current level of job insecurity compares to 1974 because the Census Bureau only began systematic data collection on contingent labor in 1995. Median job tenure (years with one’s current employer) has fallen for men over the past generation, though it has risen for women. Perhaps the feeling of greater insecurity is a result of men’s paid work coming to resemble the precariousness of women’s paid work, even while many families still think of a man’s income as the mainstay.

The constant churn of a short-term-employment labor system means that for most who fall into poverty, poverty is not a permanent condition. By the mid-1970s, a decade into the War on Poverty, the poverty rate had fallen to 11%, but the reduction was not sustained. Since then, the poverty rate has fluctuated between 11% and 15% with no consistent long-term trend. Today, we are in a high poverty phase: somewhere in the neighborhood of 15% of the population is living in poverty during any given month. While most spells of poverty last well under a year (6.6 months is the median), a large minority of the population cycles in and out of poverty. From January 2009 to December 2011, 31.6% of the population spent at least two consecutive months below the poverty line.

Families can fall into poverty for a number of reasons. Loss of employment, certainly, is a major cause. Another common precipitating event is the birth of a child—without guaranteed paid family leave, childbirth often means a simultaneous increase in household size (and expenses) and decrease in income. Health problems are another trigger for economic distress. Medical bills are the number-one cause of personal bankruptcy; even those who have health insurance may be unable to pay for their medical care. Insecurity is our constant companion.

What Money Can’t Buy

Many measures of our well-being cannot be viewed through the lens of income and the consumer spending it enables. A full life is not just made of purchased goods. Some of the most important gains in well-being are about the political and social gains achieved by social movements countering sexism and racism. The Civil Rights and Women’s Liberation movements helped achieve an increase in economic well-being, sure, but also an increase in dignity and political power.

In the mid-1970s, marriage was still a strikingly unequal contract that subordinated wives to husbands. (Same-sex marriage was not permitted anywhere in the United States. Though there were already legal cases on the issue in the early 1970s, the courts upheld same-sex marriage bans.) The criminal laws did not grant married women a right to sexual autonomy and did little to protect their physical or emotional safety; rape laws contained exemptions in the case of husbands and domestic violence was largely hidden from view. But change was beginning. The women’s movement brought attention to gender-based violence and built a network of support for survivors; the earliest rape crisis centers and emergency shelters are now marking their fortieth anniversaries, taking stock of the considerable progress we’ve made, and pressing on with the work that still needs to be done. By 1993, all states had changed their rape laws, withdrawing a husband’s unlimited sexual access to his wife’s body. In 1994, President Clinton signed into law the Violence Against Women Act, which devotes federal resources to the investigation and prosecution of violent crimes targeting women. Indeed, marriage contracts are now legally symmetrical (even if not yet symmetrical in practice)—and 33 states license marriages between any two unrelated adults, regardless of sex.

Not only are women safer at home than we were forty years ago, we have also claimed larger roles outside the home. Amendments made in 1972 to the Civil Rights Act expanded legal prohibitions on sex discrimination, including the Title IX provision prohibiting educational institutions receiving federal financial assistance from discriminating on the basis of sex. Protections against workplace discrimination are also stronger—the term “sexual harassment,” unknown in 1974, is now recognized as a form of discrimination that can carry serious legal consequences. In the political arena, the number of women in Congress has more than tripled since the mid-seventies. Prior to 1974, only four women had ever served as state governors. Since then, 32 more women have held that office.

Important work combating racial discrimination was also underway forty years ago. The Equal Employment Opportunity Commission, responsible for enforcing the Civil Rights Act in the workplace, was not yet a decade old in 1974, still early in the process of setting legal precedent for documenting and opposing workplace discrimination, including the disguised discrimination of disparate impact (when a seemingly neutral rule disproportionately affects members of a protected group). The battle to make banks’ mortgage lending data public was won in the mid-1970s, which then allowed organized (and ongoing) opposition to the “redlining” that the publicized data revealed. Twenty years after Brown v. Board of Education prohibited explicit, legally mandated school segregation, education activists in the mid-1970s pushed governments to take a more proactive role in school integration, albeit with mixed and in many places only temporary results.

A Time for Every Matter

The good life for most of us means not just money to buy the stuff we need, but also plenty of time off the job to participate in social and civic life and to rest. The inequities of the labor market have divided us into two categories—the overworked and the underemployed. For those with consistent employment, the work is often too much work. Even as output per worker hour rises—meaning that, as a society we could increase our material standard of living while holding leisure time steady, or hold our material standard of living steady while increasing leisure time, we have instead increased average work hours per year. Hours of paid labor per employee were about the same in 2000 as in 1973, but since more people were in the paid labor force, the average number of hours per working age person rose from 1,217 to 1,396, equivalent to a full extra month of forty-hour workweeks.

One consequence is that we have a leisure shortage. Chronic sleep deprivation has become the norm. According to a study by the National Academy of Sciences, Americans’ average amount of sleep fell by 20% over the course of the 20th century. Meanwhile, the unemployed and underemployed have hours on their hands that they either spend job hunting, in the endless sequence of bureaucratic tasks necessary to access the meager benefits available through the threadbare social safety net, or idle, their unclaimed hours more a burden than a gift. The supposed benefit of unemployment—leisure time to mitigate the loss of income—is not in evidence in the subjective well-being of the unemployed, who are more likely to suffer depression and family stress.

The time crunch resulting from more hours of paid work also squeezes our ability to keep up with the necessary unpaid work at home. Sociologist Arlie Hochschild was already noting in her research during the 1980s that dual- income households were giving up leisure or letting the standards of housework and at-home caregiving slip—often a mix of both. When a stay-at-home mother goes out to work for pay and reduces her hours of home production, the household’s increase in cash income gets added to GDP but the household’s loss of unpaid labor time is not subtracted. Or, if she hires a housecleaning service and a babysitter, the wages earned by the mother, the housecleaner, and the babysitter all get added to GDP, but the work done by the housecleaner and babysitter are substituting for unpaid work that was already being done. Correcting for the loss of home production that has accompanied the rise in female participation in the paid labor force requires us to revise downward the increase in output over the period 1959-2004—the largest hit came between 1959 and 1972 with the withdrawal of about 500 hours of household labor per year, a reduction of almost 20%.

Common Resources and Public Goods

Just as mothers’ labor is treated by official measures as a freely available resource, so are the gifts of nature. Nature is the source of the resources our lives depend on—trace back any production process and the earth’s resources are there at the origin. Nature is also the sink into which all the refuse and byproducts of our production get dumped. Environmental concerns were at the core of another one of the 1970s’ mass social movements. The first Earth Day was celebrated in 1970, and the Environmental Protection Agency (EPA) was created that same year. Concerns and activism around air pollution, water pollution, and the loss of biodiversity led, over the course of the 1970s, to the Clean Air, Clean Water, and Endangered Species Acts. Since the 1970s, the harms of an automotive culture have been lessened with emissions standards, fuel-efficiency standards, and the ban on leaded gasoline. Municipal recycling programs now divert tons of materials back into the human production cycle, reducing the strains on the planet as both a source of materials and as a sink for waste products.

Over the past 40 years, we have made some important gains in how we make use of the gifts of nature, but our gains are nowhere near enough. Probably the most disastrous shortcoming of all is our collective failure to maintain the atmospheric balance. Since the middle of the twentieth century, we have known that an increased concentration of carbon dioxide (CO₂) in the atmosphere will cause dangerous climate change. Despite that, we have continued to emit CO₂ at a staggering rate. Even if we were to stop tomorrow, the effects on the global climate would play out at an accelerating rate for centuries. Several of the destabilizing shifts—melting of the polar ice caps, thawing of the arctic permafrost—are only in the early stages of “positive feedback loops,” in which the result of some warming triggers more warming. Rising sea levels threaten coastal cities around the world. Severe storms will continue to increase in frequency. Wider year-to-year variations in temperature and rainfall will disrupt food production.

Looking Backward, Looking Forward

When Reagan asked, “Are you better off than you were four years ago?” he predicted that many people would say “no” and that those who answered “no” would vote for change (not necessarily the kinds of change, as it turns out, that would solve their problems). We are still in the era that Reagan helped to usher in. How is it working for us? Are we better off now, or is it time for a change?

We have seen average income rise, though not as fast as it had in the post-World War II era. Many of the most important gains we have made, moreover, are not dependent on rising average income. The achievements of the Civil Rights and Women’s Movements were about dismantling barriers to full participation in a society wealthy enough that it already could provide for all. Now rising income inequality is throwing up new barriers to inclusion.

There are enough ways in which we have lost ground that it must be time for a change. Not a change back—I would not trade the real gains we’ve made for a return to the so-called “Golden Age” of the 1940s-1970s—but a change that can carry us forward to a world we will still want to live in forty years from now.

The environmental crisis means that continuing with business as usual would sink us soon. Salvation can only come with a turn away from the fetish of GDP growth. About 40 years ago, research began systematically documenting the failure of rising average income to keep delivering rising levels of happiness (a phenomenon known as the “Easterlin paradox,” for researcher Richard Easterlin). Unorthodox economists rethought the growth imperative: E.F. Schumacher wrote Small is Beautiful and Herman Daly penned Steady-State Economics. The kingdom of Bhutan famously rejected GDP and instituted instead the measurement of Gross National Happiness. All urged a turn away from defining well-being according to money incomes.

Once a society reaches a level of income that overcomes deprivation—when nobody need go hungry or homeless, nor suffer or die from preventable disease—more income has little affect on the dimensions of well-being that have intrinsic value.

Instead we must turn toward maximizing equality. In their book The Spirit Level (reviewed by Steve Pressman, Minding the Gap, D&S, May/June 2010), Richard Wilkinson and Kate Pickett demonstrate how consistently the empirical evidence shows that more equal societies have better social outcomes in many dimensions: including longer life expectancy, better educational outcomes, stronger environmental protection, lower rates of incarceration, obesity, and teen pregnancy. Perhaps—after forty more years of trying and failing to find our way to well-being through more and more market activity, in a quest for more and more income, which has been distributed more and more unequally—we are finally ready to set our priorities straight. It is equality and environmental sustainability that will allow for human flourishing.

ZOE SHERMAN is an assistant professor of economics at Merrimack College and a member of the Dollars & Sense collective.

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