But even in the lower and lower middle classes of rich countries, moderate income gains are not the same as a decline in living standards. Today’s discussions of inequality often compare the present era unfavorably with a golden age of well-paying, dignified, blue-collar jobs that have been made obsolete by automation and globalization. This idyllic image is belied by contemporary depictions of the harshness of working-class life in that era, both in journalistic exposés (such as Michael Harrington’s 1962 The Other America) and in realistic films (such as On the Waterfront, Blue Collar, Coal Miner’s Daughter, and Norma Rae). The historian Stephanie Coontz, a debunker of 1950s nostalgia, puts some numbers to the depictions:
A full 25 percent of Americans, 40 to 50 million people, were poor in the mid-1950s, and in the absence of food stamps and housing programs, this poverty was searing. Even at the end of the 1950s, a third of American children were poor. Sixty percent of Americans over sixty-five had incomes below $1,000 in 1958, considerably below the $3,000 to $10,000 level considered to represent middle-class status. A majority of elders also lacked medical insurance. Only half the population had savings in 1959; one-quarter of the population had no liquid assets at all. Even when we consider only native-born, white families, one-third could not get by on the income of the household head.45
How do we reconcile the obvious improvements in living standards in recent decades with the conventional wisdom of economic stagnation? Economists point to four ways in which inequality statistics can paint a misleading picture of the way people live their lives, each depending on a distinction we have examined.
The first is the difference between relative and absolute prosperity. Just as not all children can be above average, it’s not a sign of stagnation if the proportion of income earned by the bottom fifth does not increase over time. What’s relevant to well-being is how much people earn, not how high they rank. A recent study by the economist Stephen Rose divided the American population into classes using fixed milestones rather than quantiles. “Poor” was defined as an income of $0–$30,000 (in 2014 dollars) for a family of three, “lower middle class” as $30,000–$50,000, and so on.46 The study found that in absolute terms, Americans have been moving on up. Between 1979 and 2014, the percentage of poor Americans dropped from 24 to 20, the percentage in the lower middle class dropped from 24 to 17, and the percentage in the middle class shrank from 32 to 30. Where did they go? Many ended up in the upper middle class ($100,000–$350,000), which grew from 13 to 30 percent of the population, and in the upper class, which grew from 0.1 percent to 2 percent. The middle class is being hollowed out in part because so many Americans are becoming affluent. Inequality undoubtedly increased—the rich got richer faster than the poor and middle class got richer—but everyone (on average) got richer.
The second confusion is the one between anonymous and longitudinal data. If (say) the bottom fifth of the American population gained no ground in twenty years, it does not mean that Joe the Plumber got the same paycheck in 1988 that he did in 2008 (or one that’s a bit higher, owing to cost-of-living increases). People earn more as they get older and gain experience, or switch from a lower-paying job to a higher-paying one, so Joe may have moved from the bottom fifth into, say, the middle fifth, while a younger man or woman or an immigrant took his place at the bottom. The turnover is by no means small. A recent study using longitudinal data showed that half of Americans will find themselves among the top tenth of income earners for at least one year of their working lives, and that one in nine will find themselves in the top one percent (though most don’t stay there for long).47 This may be one of the reasons that economic opinions are subject to the Optimism Gap (the “I’m OK, They’re Not” bias): a majority of Americans believe that the standard of living of the middle class has declined in recent years but that their own standard of living has improved.48
A third reason that rising inequality has not made the lower classes worse off is that low incomes have been mitigated by social transfers. For all its individualist ideology, the United States has a lot of redistribution. The income tax is still graduated, and low incomes are buffered by a “hidden welfare state” that includes unemployment insurance, Social Security, Medicare, Medicaid, Temporary Assistance for Needy Families, food stamps, and the Earned Income Tax Credit, a kind of negative income tax in which the government boosts the income of low earners. Put them together and America becomes far less unequal. In 2013 the Gini index for American market income (before taxes and transfers) was a high .53; for disposable income (after taxes and transfers) it was a moderate .38.49 The United States has not gone as far as countries like Germany and Finland, which start off with a similar market income distribution but level it more aggressively, pushing their Ginis down into the high .2s and sidestepping most of the post-1980s inequality rise. Whether or not the generous European welfare state is sustainable over the long run and transplantable to the United States, some kind of welfare state may be found in all developed countries, and it reduces inequality even when it is hidden.50
These transfers have not just reduced income inequality (in itself a dubious accomplishment) but boosted the incomes of the nonrich (a real one). An analysis by the economist Gary Burtless has shown that between 1979 and 2010 the disposable incomes of the lowest four income quintiles grew by 49, 37, 36, and 45 percent, respectively.51 And that was before the long-delayed recovery from the Great Recession: between 2014 and 2016, median wages leapt to an all-time high.52
Even more significant is what has happened at the bottom of the scale. Both the left and the right have long expressed cynicism about antipoverty programs, as in Ronald Reagan’s famous quip, “Some years ago, the federal government declared war on poverty, and poverty won.” In reality, poverty is losing. The sociologist Christopher Jencks has calculated that when the benefits from the hidden welfare state are added up, and the cost of living is estimated in a way that takes into account the improving quality and falling price of consumer goods, the poverty rate has fallen in the past fifty years by more than three-quarters, and in 2013 stood at 4.8 percent.53 Three other analyses have come to the same conclusion; data from one of them, by the economists Bruce Meyer and James Sullivan, are shown in the upper line in figure 9-6. The progress stagnated around the time of the Great Recession, but it picked up in 2015 and 2016 (not shown in the graph), when middle-class income reached a record high and the poverty rate showed its largest drop since 1999.54 And in yet another unsung accomplishment, the poorest of the poor—the unsheltered homeless—fell in number between 2007 and 2015 by almost a third, despite the Great Recession.55
Figure 9-6: Poverty, US, 1960–2016
Sources: Meyer & Sullivan 2017. “Disposable income” refers to their “After-tax money income,” including credits, adjusted for inflation using the bias-corrected CPI-U-RS, and representing a family with two adults and two children. “Consumption” refers to data from the BLS Consumer Expenditure Survey on food, housing, vehicles, appliances, furnishings, clothing, jewelry, insurance, and other expenses. “Poverty” corresponds to the US Census definition for 1980, adjusted for inflation; anchoring the poverty line in other years would result in different absolute numbers but the same trends. See Meyer & Sullivan 2011, 2012, and 2016 for details.
The lower line in figure 9-6 highlights the fourth way in which inequality measures understate the progress of the lower and middle classes in rich countries.56 Income is just a means to an end: a way of paying for things that people need, want, and like, or as economists gracelessly call it, consumption. When poverty is defined in terms of what people consume rather than what they earn, we find that the American poverty rate has declined by ninety percent since 1960, from 30 percent of the population to just 3 percent. The two forces that have famously increased inequality in income have at the same time decreased inequality in what matters. The first, globalization, may produce winners and losers in income, but in consumption it makes almost everyone a wi
nner. Asian factories, container ships, and efficient retailing bring goods to the masses that were formerly luxuries for the rich. (In 2005 the economist Jason Furman estimated that Walmart saved the typical American family $2,300 a year.)57 The second force, technology, continually revolutionizes the meaning of income (as we saw in the discussion of the paradox of value in chapter 8). A dollar today, no matter how heroically adjusted for inflation, buys far more betterment of life than a dollar yesterday. It buys things that didn’t exist, like refrigeration, electricity, toilets, vaccinations, telephones, contraception, and air travel, and it transforms things that do exist, such as a party line patched by a switchboard operator to a smartphone with unlimited talk time.
Together, technology and globalization have transformed what it means to be a poor person, at least in developed countries. The old stereotype of poverty was an emaciated pauper in rags. Today, the poor are likely to be as overweight as their employers, and dressed in the same fleece, sneakers, and jeans. The poor used to be called the have-nots. In 2011, more than 95 percent of American households below the poverty line had electricity, running water, flush toilets, a refrigerator, a stove, and a color TV.58 (A century and a half before, the Rothschilds, Astors, and Vanderbilts had none of these things.) Almost half of the households below the poverty line had a dishwasher, 60 percent had a computer, around two-thirds had a washing machine and a clothes dryer, and more than 80 percent had an air conditioner, a video recorder, and a cell phone. In the golden age of economic equality in which I grew up, middle-class “haves” had few or none of these things. As a result, the most precious resources of all—time, freedom, and worthy experiences—are rising across the board, a topic we will explore in chapter 17.
The rich have gotten richer, but their lives haven’t gotten that much better. Warren Buffett may have more air conditioners than most people, or better ones, but by historical standards the fact that a majority of poor Americans even have an air conditioner is astonishing. When the Gini index is calculated over consumption rather than income, it has remained shallow or flat.59 Inequality in self-reported happiness in the American population has actually declined.60 And though I find it distasteful, even grotesque, to celebrate declining Ginis for life, health, and education (as if killing off the healthiest and keeping the smartest out of school would be good for humanity), they have in fact declined for the right reasons: the lives of the poor are improving more rapidly than the lives of the rich.61
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To acknowledge that the lives of the lower and middle classes of developed countries have improved in recent decades is not to deny the formidable problems facing 21st-century economies. Though disposable income has increased, the pace of the increase is slow, and the resulting lack of consumer demand may be dragging down the economy as a whole.62 The hardships faced by one sector of the population—middle-aged, less-educated, non-urban white Americans—are real and tragic, manifested in higher rates of drug overdose (chapter 12) and suicide (chapter 18). Advances in robotics threaten to make millions of additional jobs obsolete. Truck drivers, for example, make up the most common occupation in a majority of states, and self-driving vehicles may send them the way of scriveners, wheelwrights, and switchboard operators. Education, a major driver of economic mobility, is not keeping up with the demands of modern economies: tertiary education has soared in cost (defying the inexpensification of almost every other good), and in poor American neighborhoods, primary and secondary education are unconscionably substandard. Many parts of the American tax system are regressive, and money buys too much political influence. Perhaps most damaging, the impression that the modern economy has left most people behind encourages Luddite and beggar-thy-neighbor policies that would make everyone worse off.
Still, a narrow focus on income inequality and a nostalgia for the mid-20th-century Great Compression are misplaced. The modern world can continue to improve even if the Gini index or top income shares stay high, as they may well do, because the forces that lifted them are not going away. Americans cannot be forced to buy Pontiacs instead of Priuses. The Harry Potter books will not be kept out of the hands of the world’s children just because they turn J. K. Rowling into a billionaire. It makes little sense to make tens of millions of poor Americans pay more for clothing to save tens of thousands of jobs in the apparel industry.63 Nor does it make sense, in the long term, to have people do boring and dangerous jobs that could be carried out more effectively by machines just to give them remunerable work.64
Rather than tilting at inequality per se it may be more constructive to target the specific problems lumped with it.65 An obvious priority is to boost the rate of economic growth, since it would increase everyone’s slice of the pie and provide more pie to redistribute.66 The trends of the past century, and a survey of the world’s countries, point to governments playing an increasing role in both. They are uniquely suited to invest in education, basic research, and infrastructure, to underwrite health and retirement benefits (relieving American corporations of their enervating mandate to provide social services), and to supplement incomes to a level above their market price, which for millions of people may decline even as overall wealth rises.67
The next step in the historic trend toward greater social spending may be a universal basic income (or its close relative, a negative income tax). The idea has been bruited for decades, and its day may be coming.68 Despite its socialist aroma, the idea has been championed by economists (such as Milton Friedman), politicians (such as Richard Nixon), and states (such as Alaska) that are associated with the political right, and today analysts across the political spectrum are toying with it. Though implementing a universal basic income is far from easy (the numbers have to add up, and incentives for education, work, and risk-taking have to be maintained), its promise cannot be ignored. It could rationalize the kludgy patchwork of the hidden welfare state, and it could turn the slow-motion disaster of robots replacing workers into a horn of plenty. Many of the jobs that robots will take over are jobs that people don’t particularly enjoy, and the dividend in productivity, safety, and leisure could be a boon to humanity as long as it is widely shared. The specter of anomie and meaninglessness is probably exaggerated (according to studies of regions that have experimented with a guaranteed income), and it could be met with public jobs that markets won’t support and robots can’t do, or with new opportunities in meaningful volunteering and other forms of effective altruism.69 The net effect might be to reduce inequality, but that would be a side effect of raising everyone’s standard of living, particularly that of the economically vulnerable.
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Income inequality, in sum, is not a counterexample to human progress, and we are not living in a dystopia of falling incomes that has reversed the centuries-long rise in prosperity. Nor does it call for smashing the robots, raising the drawbridge, switching to socialism, or bringing back the 50s. Let me sum up my complicated story on a complicated topic.
Inequality is not the same as poverty, and it is not a fundamental dimension of human flourishing. In comparisons of well-being across countries, it pales in importance next to overall wealth. An increase in inequality is not necessarily bad: as societies escape from universal poverty, they are bound to become more unequal, and the uneven surge may be repeated when a society discovers new sources of wealth. Nor is a decrease in inequality always good: the most effective levelers of economic disparities are epidemics, massive wars, violent revolutions, and state collapse.
For all that, the long-term trend in history since the Enlightenment is for everyone’s fortunes to rise. In addition to generating massive amounts of wealth, modern societies have devoted an increasing proportion of that wealth to benefiting the less well-off.
As globalization and technology have lifted billions out of poverty and created a global middle class, international and global inequality have decreased, at the same time that they enrich elites whose analytical, creative, or financial impac
t has global reach. The fortunes of the lower classes in developed countries have not improved nearly as much, but they have improved, often because their members rise into the upper classes. The improvements are enhanced by social spending, and by the falling cost and rising quality of the things people want. In some ways the world has become less equal, but in more ways the world’s people have become better off.
CHAPTER 10
THE ENVIRONMENT
But is progress sustainable? A common response to the good news about our health, wealth, and sustenance is that it cannot continue. As we infest the world with our teeming numbers, guzzle the earth’s bounty heedless of its finitude, and foul our nests with pollution and waste, we are hastening an environmental day of reckoning. If overpopulation, resource depletion, and pollution don’t finish us off, then climate change will.
As in the chapter on inequality, I won’t pretend that all the trends are positive or that the problems facing us are minor. But I will present a way of thinking about these problems that differs from the lugubrious conventional wisdom and offers a constructive alternative to the radicalism or fatalism it encourages. The key idea is that environmental problems, like other problems, are solvable, given the right knowledge.
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