This link between mobility and economic opportunity has broken. In the United States, there is no better predictor of a child’s future income then the current income of his or her parents.5 An individual’s fate is not inevitable, of course, but the association between parental income and children’s income, at every level, is tight to the point of ruthlessness. For better or for ill, most Americans inherit from parents their own future economic circumstances as adults. If you’re poor, your children likely will be poor too. If you’re well-off, they’re likely to be fine.
When a parent’s present income predicts a child’s future income so accurately, the only conclusion to be drawn is that there is little real economic mobility. Poor and middle-class Americans have a hard time climbing up. Wealthy Americans are the least likely to slide down. Real opportunity exists only when the possibility of upward mobility also exists. Take away mobility, and the American dream becomes meaningless—something between a nostalgic myth and a political lie. Take away mobility, and our society becomes profoundly unjust.
It was never as easy for Americans to move up the economic ladder as we told ourselves—never as easy to “turn over a new leaf” and rise, like Horatio Alger Jr.’s Ragged Dick, from shining shoes to a job in Mr. Rockwell’s counting room. It has been harder still if you are a person of color and especially if you are an African American male.6 During the past forty years, economic mobility between generations has gone from being really hard to being much, much harder.
The combination of growing inequality of wealth and decreasing economic mobility defines the present era in America. A few years ago, Alan Krueger, the onetime chair of President Obama’s Council of Economic Advisers, presented a “Great Gatsby Curve” to a gathering in Washington to illustrate the problem starkly.7 The graph cross-references two factors. One is an index that captures the likelihood that a child will exceed the income of his or her parents. The other is an index that captures the degree of income inequality. Krueger took a set of relatively similar developed nations and compared them using both factors. The farther toward the right side of the graph a country lands, the greater its income inequality. The farther toward the top, the more probable it is that parental income determines a child’s future income. So when we find the United States in the upper right-hand corner, Krueger is handing down two economic indictments: first, compared with the other countries in the set, we have a much greater gap between our richest and our poorest; and second, Americans are more likely to inherit their parents’ economic circumstances. At the risk of writing something that my political opponents might use against me, if any country on the “Gatsby” chart deserves the title “land of opportunity,” it is Denmark or Finland, not the United States. Krueger sums up the relationship with troubling clarity: “Countries that have a high degree of inequality also tend to have less economic mobility across generations.”
It is no coincidence that from the 1980s to the present, hourly compensation for Americans flattened, even as productivity steadily grew. There are many explanations for this trend, including global competition for labor, greater automation, less upward pressure on wages (caused by decreasing unionization of the workforce and decreasing real value of the minimum wage), rapidly rising health care costs, and the unequal distribution of earnings to people already at the top. The bottom line is that most people in America are not living reasonable middle-class lives. They cannot afford decent health care, housing, higher education, or early childhood education, to say nothing of saving for the future or taking a family vacation. That is why 60 percent of the American people have to borrow money to stay afloat. That is why the same number say they cannot afford an unexpected $500 expense. That is why (according to the Institute for Policy Studies) the median black family in 2013 had a net wealth of $1,700 and the median Latino family had a net wealth of $2,000—but the median white family had a net wealth of $116,800. (The statistics do not count certain basic belongings, such as a car and furniture.) It is a major reason we have become less mobile and more unequal. Income stagnation and growing inequality affect more than just individual lives. They drag down all Americans. As the prospects for the next generation’s mobility decline, overall consumer spending for goods and services also declines and so does the size of the middle class. In his book The Rise and Fall of American Growth, the economist and historian Robert J. Gordon reaches the same conclusion. Surveying the long trends of the past century and a half and projecting into the future, he identifies inequality as the first of four forces—he calls them headwinds—that are likely to limit growth in the American economy in the decades ahead.8
These trends should trouble every American, and they should unite us to search for answers—even as we may disagree with one another about the best path forward. For if we treat the trends as inevitable, it is possible that for the first time in our history, as the economist Raj Chetty and his colleagues have shown, a majority of the next generation of Americans will earn lower incomes than their parents. That is where we are now headed. More than 90 percent of children born in 1940 went on to earn more than their parents. For children born in 1984, the figure is barely 50 percent. There is no doubt that a rising tide lifts all boats, but in America’s economy today the yachts are being lifted far faster and far higher than the dinghies. And the American families in those dinghies are beset by a riptide of unequally distributed growth, lower mobility, stagnant wages, and rising costs.9
What about education as a means to address lack of economic mobility and rising inequality? Just as we want to believe consoling stories of upward mobility, so too we tell ourselves that one ingredient necessary for advancement is a good education. Frank Whitney, who serves as Ragged Dick’s guide to a better life in Horatio Alger’s fable, explains, “But, in order to succeed well, you must manage to get as good an education as you can. Until you do, you cannot get a position in an office or counting-room, even to run errands.”
This is unquestionably true. Children from families in the bottom half of American earners who attain four years of college are likely to reach much higher levels of income. Census Bureau data tell us that a student from a household earning about $24,000 leaves college and enters the workforce able to earn between $45,600 and $74,800. Such students can buck the intergenerational trend. Unfortunately for our children and our country, the number of young people attaining the kind of degree that can change their economic trajectory is vanishingly small. The best predictor today of whether you are headed to college in the first place is—catch-22—your family’s income.10
As the superintendent of the Denver Public Schools, I saw the way our students in poverty were often denied the cognitive and emotional building blocks required for academic success. Research bears these anecdotal observations out. Poverty is the primary factor generating gaps in measured academic performance between children from poor and wealthy families before they enter school. And once they start school, students living in poverty have fewer and lower-performing options for preschool and early childhood education. They are less likely to have a range of good academic choices and more likely to attend a school that struggles. They are more likely to be assigned to inexperienced or young and struggling teachers and to classes with lower-performing peers. To make matters worse, their parents have few resources to invest in closing the gap outside school—private tutors, test-prep services, enrichment experiences. For most children in poverty, school is a place where achievement gaps persist, even grow.
By age four, according to some estimates, a child born into poverty will have heard 30 million fewer words than her more affluent peers. When she reaches fourth grade, her chance of being a proficient reader is one in five. Her chance of earning a college degree is one in ten. These outcomes are terrible from the vantage point of the students and their families and from that of our country as a whole.
The economist Sean Reardon, along with his colleague Anna K. Chmielewski, has studied the relationship between overall income inequality and
the achievement gap between students from the wealthiest and poorest households in twenty developed countries. Their research yields a result reminiscent of the “Great Gatsby Curve.” The horizontal axis is the same measure for wealth inequality used by Krueger. The vertical axis captures the gap in average achievement between students from households with earnings in the lowest tenth and students from households in the highest tenth. Countries in the upper right-hand corner have both high income inequality and more academic distance between the most and least affluent students. Countries in the lower left-hand corner—such as Norway, Sweden, and even Slovenia—have the opposite characteristics: low income inequality and smaller income-achievement gaps. The United States does badly on both indices; our international peers are Portugal and Greece.
In America, educational outcomes are reinforcing economic inequality rather than liberating students and their families from it. In a different narrative, education would be the wind filling the sails of a generation—the way it did after World War II, when a national movement to improve high schools and the GI Bill, among other efforts, transformed the prospects of the baby boomers. In the narrative we are actually living, though, Robert Gordon counts education, along with rising inequality, among the headwinds we sail against.
It does not have to be this way. In Denver, I have seen signs of progress, even as stubborn achievement gaps remain. We must support efforts of educators, schools, and school systems serving our toughest neighborhoods to help students beat the odds. As superintendent, I came to understand directly what teachers and schools can add to the lives of our children and just how hard the work is. We should appreciate even more how much students themselves have done to beat the odds.
But we must also face the brutal facts that when one group of American children, with certainty, has access to high-quality preschool and the other, through no fault of its own, does not; when one group has access to high-quality K-12 schools and the other does not; when one group enjoys enrichment activities and tutoring and the advice of parents and coaches who themselves went to college and the other does not; when all this is true, then equal is not equal—and unequal is catastrophic for students holding the short end of the stick.
The fact that in our lifetimes economic opportunity has shrunk for nine out of ten Americans—especially the least fortunate—should shock us all into action.
III. From Surplus to Deficit
I am by nature an optimist, though many of the choices we have made during the past generation have sorely tested that outlook: the failure to invest in education, the merry pursuit of tax cuts for the wealthy, the utter disregard for the liabilities we have piled up for our children, and, on top of all that, the dishonesty with which these issues have been discussed.
In January 2009, when Colorado governor Bill Ritter appointed me to fill the Senate vacancy created by Ken Salazar’s departure for the Department of the Interior, I thought that the kinds of deliberation I’d engage in at the federal level—particularly when it came to the budget and the economy—would be similar to what I’d long experienced in Colorado. I had seen more than my share of budgets, first in my work with Phil Anschutz and then in the public sector in the city of Denver and Denver Public Schools. When I was school superintendent, the Metro Organizations for People led an effort to take what then was a byzantine assemblage of budget formulas and transform it into a working tool that anyone could use and understand. The outcome of this reform, which we called a student based budget, was imperfect, but its transparency served the public better than its predecessor had and it is still in place today.
When I entered the Senate in early 2009, I imagined that our work might resemble my experience leading the schools. There was good reason. We were in the midst of the Great Recession, a moment of dangerous economic turmoil with no recent precedent. According to the Bureau of Labor Statistics, the economy had lost 4.3 million jobs the previous year; in the year to come, the number lost would nearly double. As the economy collapsed, so did tax revenues. At the same time, job losses triggered spikes in unemployment insurance, food stamps, and spending on federally funded health care for those who could no longer afford or get access to private insurance. The decline in revenue and the growth in costs sent deficits skyrocketing.
A new president, Barack Obama, and a new Congress faced the challenge of vanquishing the recession and mitigating its impact on millions of American families. Confronted by natural disaster, foreign attack, or any other national emergency, leaders in Washington would rightly be expected to resolve their political differences—and act decisively. Instead, when faced with an economic crisis of existential dimensions, Congress collapsed into bitter and counterproductive partisan warfare that left the American people deeply skeptical about their elected leaders’ ability to tackle problems—and deeply suspicious of their leaders’ motivations.
National crises aside, when it comes to the federal government’s budget, the elected leaders of both parties—in their own individual ways and some more determinedly than others—have made a shambles of what should be a basic civic responsibility. What has passed for budget debate in Washington over the past decade has in fact been a bad serial novel. In each successive chapter, conflict escalates only to produce another sorry ending in which the leaders find yet another easy way out, further obscuring and enlarging a theft from the next generation of Americans. We are a long way from what we learned watching Schoolhouse Rock!
Let’s start with two basic concepts: the deficit and the debt. The deficit is our annual budget shortfall; the debt is the accumulated burden of that shortfall. There have been only three or four times since World War II when the United States did not run a deficit, the most recent being in the late 1990s when Bill Clinton was president. In 2018, the US government spent more than $4.1 trillion and collected more than $3.3 trillion. The difference, around $780 billion, was our 2018 deficit. Looking forward, the debt and deficit are both projected to continue to rise—steeply—as a percentage of gross domestic product (GDP). If we do not change course, our children will have less and less reason to thank us.
There is room for debate about the size that the nation’s deficit should be, and the year-to-year number depends significantly on the state of the economy. In general, during financial crises or recessions, as the private sector falters, running larger deficits helps stave off economic implosion. Without government investment, capital remains idle and the economy is underproductive, unemployment deepens, and in the worst case the workforce experiences damage that outlasts the recession. So, in bad times, temporarily large deficits can make sense. But over the long run, when the economy is relatively healthy, deficits should be smaller. This stabilizes the debt and reassures lenders that they will be repaid, so they are willing to finance federal borrowing at reasonable rates if a major investment is warranted. As a rule of thumb, fiscal sustainability requires keeping annual deficits to just about 3 percent of our gross domestic product.
To understand federal government spending, think of it as falling into two buckets. The first is “mandatory” or “entitlement” spending. These are programs that grow as the number of eligible people increases, and they are not subject to the annual appropriations process. This category includes programs such as Medicare, Medicaid, and Social Security. The second bucket is “discretionary” spending, money that Congress allocates in the annual appropriations process. About half of discretionary spending is military and about half includes national investment in things like health research, transportation, education, agriculture, the national parks, NASA, law enforcement, and foreign relations. Since 1980, the Congressional Budget Office (CBO) reports, we have cut discretionary spending by 35 percent as a proportion of GDP. At the same time, according to the CBO, we have increased mandatory spending by 39 percent. We have cut revenue by about 4 percent.
When they persist, annual deficits and mounting debt act as a political head cold, robbing us of our imagination and ambition. At present, we are
spending, as a share of the economy, a third less on investments in our future—on infrastructure, on education, and on basic research into and development of lifesaving cures or clean energy—than we were a generation ago. We don’t have the decency to maintain the roads and bridges that our parents and grandparents had the wisdom to build for us, much less the foresight to build the high-speed broadband infrastructure or modern electrical grid our children and grandchildren will need to compete in the twenty-first century. As we fail to invest in the next generation of Americans, we also circumscribe their ability to invest in themselves and their children by sticking them with a debt obligation they did nothing to incur.
Given the country’s current financial state, it’s hard to believe that in June 1999, President Bill Clinton walked out to the White House Rose Garden to speak to the press about the nation’s budget surplus. “We have now cut up Washington’s credit card,” he boasted. The economy was booming and national coffers were flush. Projections showed the government poised to run a surplus for the second year in a row, collecting about $100 billion more than it would spend. Americans had not seen a budget surplus since Richard Nixon’s first year in office, and even then it was small, and a one-time-only experience. After twenty-nine years of budget deficits, we had reached a moment of unfamiliar opportunity. By the time Clinton left office, the Congressional Budget Office was projecting a surplus of nearly $5.6 trillion over the next decade. “The surplus is the hard-earned product of our fiscal discipline,” Clinton announced. He tried to persuade Washington to use the surplus “to prepare for the great challenges facing our country—caring for our parents, caring for our children, freeing our nation from the shackles of debt so that we can have long-term sustained economic prosperity.”
Clinton’s press conference set off a debate unimaginable today. It is hard to conceive of politicians arguing over what to do with abundance. Clinton proposed investing the surplus in education and child care while shoring up Medicare and Social Security. His plan went even further, though, and pointed to a tantalizing goal: eliminating all $3.6 trillion of publicly held federal debt by 2015.
The Land of Flickering Lights Page 13