Online NewsHour: Academics on Economic Insecurity

ECONOMIC VIEWS

MARCH 19, 1996
TRANSCRIPT

The NewsHour continues its week-long look at the hot button political and economic issue at the moment, economic insecurity. Paul Solman, of WGBH-Boston, is in charge.
PAUL SOLMAN: In 1992, Bill Clinton's successful campaign theme could be and often was summed up in a single phrase, "It's the economic, stupid." Four years later, economic issues remain the focus of the political season. If there's a catch phrase this year, though, you might say it's "economic insecurity," period, and that's the theme being sounded by candidates across the political spectrum.
PAT BUCHANAN, Republican Presidential Candidate: (February 28, 1996) The middle income, the median income of Americans, is not going up the way it used to when I was a boy. It's going down, but the corporate profits are soaring. I don't mind corporate profits soaring, but why aren't the working men and women in the American families sharing if the times are good? When times are bad, we all sacrifice, right? When times are good, we all share. And we're not sharing.
PRESIDENT CLINTON: (March 4, 1996) You and I know that this period of change is so profound that it also presents us with great challenges. We know that even as we create jobs, millions of people feel less secure in the jobs they have. We know that even as more and more people get high wage jobs, many, many Americans are working harder for the same or lower wages that they were making ten years ago.
PAUL SOLMAN: What's going on? Well, in the decades after World War II, as has often been reported, the economy grew by leaps and bounds. Workers at every income level prospered, and Americans grew accustomed to this fast improving standard of living. But in the early 1970's, something seems to have changed. The economy slowed down. Wages began to stagnate, and the gap between the haves and the have-nots began to widen. Although there are bright spots in the economy these days, modest unemployment, low inflation, and the stock market at an all time high, many workers look at their paychecks and feel an increasing sense of unease. So what is the source of the income gap in today's unease, and is there anything we can do? We have four responses to those questions. Lester Thurow is an economist at the Massachusetts Institute of Technology and author of the new book The Future of Capitalism. William Niskanen is an economist and chairman of the Cato Institute, a Washington think tank. Orlando Patterson is a professor of sociology at Harvard, and Michael Novak is a political philosopher with the American Enterprise Institute here in Washington. Gentlemen, thank you all for being here. Professor Thurow, is the income gap a major part of what's causing our collective unease?
LESTER THUROW, MIT: (Seattle) Well, it isn't just the income gap. It's that you've got a bottom 60 percent of the population where when you correct for inflation, their wages are actually falling in real terms, and for some of these people rather substantially over a 20-year period of time.
PAUL SOLMAN: So it's not--but is the income gap an important part of it? We've heard so much about the income gap. That's why I'm starting with it.
PROF. THUROW: I think the income gap is a symbol of these falling wages. Americans generally aren't envious, and so if you take the statistic that CEO salaries have gone from thirty-five to a hundred and sixty times that of the average worker, what makes people mad about that is not just the thirty-five to a hundred and sixty, but many of them know that their income is down in absolute terms, and it's not just that somebody else's income is up.
PAUL SOLMAN: Mr. Niskanen, do you agree with that?
WILLIAM NISKANEN, Cato Institute: Yes. The main problem is we've had a very slow growth of productivity now since about 1973, and total compensation has increased at about the same rate, but wages have not. So I think it is the average condition that is the main problem and not the wage gap.
PAUL SOLMAN: What's--let's, let's talk about it as either slower growth, income gap, wages of the people at the bottom having trouble. What is causing this set of malaises or whatever you'd say?
MR. NISKANEN: Well, a variety of different reasons. The slow growth I think is that we've had a very slow growth of what economists call human capital, means job skills. We've had a very low savings rate now for 15 years. We've had an explosion of regulation and litigation costs. And we've had a big increase in tax rates since about the mid 60's.
PAUL SOLMAN: And you think those are the factors that are actually causing the economy to substantially have slowed down and the people at the bottom half of it to have been hurt disproportionately?
MR. NISKANEN: I think there are somewhat different reasons for the wage gap, itself. I think Les is correct that the primary concern is that people at the bottom, in fact, now have lower wages than they did 20 years ago. But the wage gap I think is due to a number of other phenomena, probably due to the increased role of trade, probably due to high immigration levels, possibly due to changes in technology. I think importantly also I think the absolute skill level of the people at the bottom of our skill distribution is probably lower than it was 20 years ago. We've had a very poor performance of our public school systems.
PAUL SOLMAN: Let's stay with this just for a second. Prof. Thurow, do you think that that encompasses the list and, if so, in what proportion are we to explain what's been happening by what Mr. Niskanen just talked about?
PROF. THUROW: See, I think there are four things going on, and it's the combination of the four that does it.
PAUL SOLMAN: Okay.
PROF. THUROW: And a couple of them have been mentioned already. One is a genuine global economy, where you can move production to lower wage places and where immigrants move into the United States from low wage countries to high wage countries. Secondly, there really is a technical shift. We need skills at the bottom of the economy that we didn't used to need. Third, we have a national policy in some sese of reducing wages. If you had a 2 percent productivity growth--2 percent limit put on the economy by Alan Greenspan at the Federal Reserve Board, and if I'm working in a big corporation, where they've got productivity growing at 6, that means at the end of every year, they have 4 percent of their work force they don't need, and they do a downsizing, and when they do that downsizing, a lot of people take a big cut in wages.
PAUL SOLMAN: You mean--just to clarify--the Federal Reserve isn't stimulating the economy enough, is that your point?
PROF. THUROW: No. The Federal Reserve Board is putting a brake on the economy. Alan Greenspan has testified that he thinks the maximum rate of growth in the American economy is 2 1/2 percent, and a 2 percent growth rate, he recently testified in Congress, is basically okay.
PAUL SOLMAN: So that he's not lowering interest--
PROF. THUROW: A 2 percent growth rate just doesn't hack it.
PAUL SOLMAN: So he's not letting interest rates grow low enough or lower enough?
PROF. THUROW: Right. He raises interest rates every time you seem to go faster than that, and that's--
PAUL SOLMAN: Okay. That's three reasons. Now, what's your fourth reason?
PROF. THUROW: The fourth reason is I think that after World War II because of the fear of socialism, Communism, and unions, we had an implicit social contract that said that big corporations wouldn't extract the last pound of flesh. With unions, socialism, and Communism gone, a new social contract is in place which is much harsher. Big corporations simply feel they can do things that they couldn't have done 30 years ago and get away with them politically. We had a good example of that in the "New York Times" recently where they talked about managed health care, where many corporations are cutting health care by putting the workers into a system where you don't get to see the doctor you want to see and you don't get certain treatment and then for the top 50 years. So executives will have a special, old-fashioned kind of Blue Cross/Blue Shield program, spend any amount of money you want to spend, go to any doctor you want to go, have any treatment you want to have, and that's two class medical care that just would have been politically explosive in the 50's and 60's, and today you can do it and get away with it.
PAUL SOLMAN: Let's get our social philosophers in here. Mr. Novak, you're listening to this, as I am, and does that sound to you like a description of what has been happening, whether it's been causing our unease or not, is that first the right--correct description?
MICHAEL NOVAK, American Enterprise Institute: Well, part of it. I don't think it's all of it. We have to add in the question of the earthquake that rumbled through the American family structure in the last 30 years. If you look at the people at the very bottom, the bottom 20 percent, that used to be composed of a lot of families where there was a man working, an intact family. Those people are almost all gone from the bottom 20 percent. The bottom 20 percent, only one out of five works full-time, year-round. Two out of three are women, either widows, rather old, or young mothers with children who are not in the position to be working full-time. That's hurt that bottom 20 percent.
PAUL SOLMAN: So that's contributed to the widening of the income gap.
MR. NOVAK: Of course.
PAUL SOLMAN: Income broadly defined.
MR. NOVAK: And those of us who were conservative and said that in the Reagan years that a rising tide will lift all boats were proven wrong, because if people aren't working, a good economy, even though you've got a higher proportion of American adults employed than ever before, that didn't raise the people who weren't working. And so it's beyond the power of the economy to help those in the bottom 20 percent, and you have to do it in some other way. One other way, for example, would be if Social Security were owned by the individual.
PAUL SOLMAN: Well, let's--
MR. NOVAK: They would have their own pouch of money.
PAUL SOLMAN: Let's hold our answers for a bit. Let's just let's get finished with the diagnosis, if we can. Prof. Patterson, you've heard trade, you've heard technology. There are a couple of things we haven't mentioned, unions being weaker and minimum wage not being raised. What, what do you think--and now we hear the family and the dissolution of the family is part of the general unease of this skewing of income--what's your take on it?
ORLANDO PATTERSON, Harvard University: (Boston) Well, basically what's happened is what Stanley Greenberg has called an explosion of alienation in the population. That alienation we've witnessed for quite a few years from the bottom 10, 20 percent, but now it's expanded to--extended to the middle classes because there's a sense of--Americans, someone said earlier, are not envious. That's true. They also, as we know it, have a sense of fairness, and of what's right, and are willing to work hard. That is the contract, implicit contract, if you like, and the assumption being if you work hard, you would in the long--it would pay off for you and for your children. There is, uh, among the middle classes and working classes, a growing sense that this is no longer the case, that no matter how hard you work, you, umm, you take--you find yourself falling behind, and there's--this is reflected most obviously in the enormous suspicion, distrust of Washington, where less than 20 percent of the people trust Washington. This has been interpreted by the Republicans as a mistrust of politics and government. That's an incorrect take of what's happening. What they distrust is what's happening in Washington now, and, umm, and the sense that the government has been hijacked by special interest groups and that the people are being abandoned and that there's a profound sense of unfairness of what's happening reflected also in the fact that large corporations are in a sense bailed out. They are not subject to the forces of the market, as was once the case in the past, where companies such as RJR Nabisco, Chrysler, and so on should have--should not be in existence now, if one really took seriously the market forces.
PAUL SOLMAN: So it's unease--
PROF. PATTERSON: Compassion for corporations but no compassion for ordinary individuals who are told that tough luck, you're at the mercy of the market. And there's a sense that there's no fairness in what's happening, and that's what's driving the extraordinary explosion of alienation.
PAUL SOLMAN: Okay. Well, Mr. Niskanen, you're somebody who believes famously in the market. Is this fairness issue, which I think Prof. Thurow was alluding to as well, is that really an issue, and is that part of what the unease is about here?
MR. NISKANEN: Let me say this very clear. I think this whole economic insecurity middle class anxiety theme of this year's--is this year's election story. It has no objective basis. It is a story created by the press. There is no evidence consistent with it, other than stray responses to polls.
PAUL SOLMAN: We had--I'm shocked to hear this because last night we had a group of people on the show who were from Dayton, Ohio, one after another, who testified to their sense of growing insecurity and I've been doing a piece--taped piece on AT&T, where it's literally pervasive. Now, granted, this is a place where, you know, people are being laid off, and that's who I'm talking to, but are you telling us that that's really not so?
MR. NISKANEN: The employment rate is almost the highest in American history. The unemployment rate is the lowest in about 20 years. The proportion of people working part-time involuntarily is very low. There is no objective evidence in revealed behavior of divorce rates or suicide rates, anything other than responses to journalists or to pollsters that would indicate this, this pervasive anxiety or insecurity. It is the creation of your profession.
PROF. PATTERSON: I don't see how he can just dismiss the poll data. That's the best data we have, what people think, by asking them, and there have been numerous polls, not just occasional polls, which, all of which converge in the same conclusion that a large proportion of people distrust the government and are extremely insecure. These are by major polling organizations. There's a repeated Harris Poll on level of alienation, distrust of government, insecurity. This is not an isolated poll. I don't know what you're talking about.
PAUL SOLMAN: Well, hold on just a second. Prof. Thurow, let's just get everybody in for a second. What's your response to this, the fact that this is not an issue?
PROF. THUROW: I think two things. One, if your real income's been falling, you're very worried. The other answer too is that it is really true that it now takes a mother and father working to make approximately the same amount of money that the father by himself used to make if you're in the bottom 40 percent of the population. And I think it's a little bit like statistics on rape rates. You know, let's say one out of a thousand women is going to be raped. You can say, hey, that's no big problem, it's one out of a thousand. The answer is all nine hundred and ninety-nine can be scared to death by that one out of a thousand. So I think, you know, there clearly is a lot of anxiety out there, and there's some real reason why that anxiety occurs.
PAUL SOLMAN: Hold on a second because I want to get Michael Novak in. Do you think that there is a pervasive anxiety, or do you think Mr. Niskanen is right, and we've just blown it out of proportion?
MR. NOVAK: Well, look, there's always some insecurity, but look on the other side as well. What is the current rate of the number of Americans who voluntarily quit their jobs? It's, it's classically at 9 or 10 percent. It's one of the highest in the world. Americans feel quite confident in very large numbers. But you can--economics is not called the dismal science for nothing. If you get the unemployment rate way down, if you get inflation way down, big problems just ten or fifteen years ago, something else is going to pop up as the main problem of the day. But, look also at the size, the dimensions of the problem. You've been talking about the very large corporations. The Fortune 500 employ only about 12 million out of 122 million. I mean, that's a small part of the American economy.
PAUL SOLMAN: But are you saying--I mean, when we hear so often people saying--maybe they just know we're reporters and they say, oh, we're supposed to say we're insecure, but assuming for a moment that they're being a little more honest than that, I mean, what are they--what are they talking about, if they're not talking about what we--what these gentlemen have been talking about here?
MR. NOVAK: Look, there is bound to be some of that. At the institute where I work, there is no such thing as tenure. I mean, everybody has a certain insecurity about it. And if you elicit it, well, I haven't thought about it, but if you elicit it, yes, it is, it is a fact.
PAUL SOLMAN: The insecurity is a fact?
MR. NOVAK: Yeah, the insecurity is a fact, and the more you talk about it, the more you propound on it, the more widespread it gets.
PAUL SOLMAN: Is anybody insecure at Cato, Mr. Niskanen?
MR. NISKANEN: Oh, we're all insecure, and nobody cares about it. You know, the rate of job turnover is not unusually high. It is hitting some new groups of people like middle class middle managers and so forth, and in some cases journalists, and so there may be new people who have anxiety, but I must acknowledge no expert, being no expert in anxiety or how to read it.
PROF. THUROW: Let me point to a statistic.
PAUL SOLMAN: Mr. Thurow.
PROF. THUROW: Let me point to a statistic that's really true. The Department of Labor tells us that if you look at non-supervisory workers, that's everybody who doesn't boss anybody else, their wages in real terms are down 14 percent since 1973, and by the time the year 2000 rolls around, their wages are going to be just about back to where they were in 1950. Now, that's a half a century with no increase in real wages for the vast majority of American workers. Over the same period of the time the per capital GNP is up substantially. This just isn't the conventional America. Another statistic I think you have to point to--and this wasn't true a few years ago--at the moment, if you look at young males twenty-five to thirty-four years of age, 32 percent of them cannot earn an above-poverty line income. So we're telling one third of the young males in America you will never be able to support a family. We didn't say that in the 1960's. The statistics didn't indicate that in the 1960's. Now, I think the only mystery is: Why does it pop up now? Male wages have been falling for almost 25 years. Female wages have been falling for more than 10 years. The mystery is why are people getting concerned now, as opposed to why didn't they get concerned five years ago?
PAUL SOLMAN: Very briefly, we don't have much time left here, what does it do to people, Orlando Patterson, when they, if you are correct, and the pollsters are correct, feel as insecure as you think they feel?
PROF. PATTERSON: Well, unfortunately, what they may sometimes do is respond to, umm, demagoguery, and of course, the history of Europe reflects that. Recent developments in response to, umm, the Buchananite message also reflects that. Hopefully, that will be only one kind of response. But another response, of course, is simply to insist that the government reforms itself and corrects the imperfections of the market, if you like, in the way in which it's done in the social democracies of Europe, where a sense of fairness is, is preserved by the government simply coming in and, if you like, buffering the shock of transition by providing greater security and health and so on. That's the sort of--it's as simple as that--
PAUL SOLMAN: Okay. Well, we--
PROF. PATTERSON: Our government is insisting on the contrary, that it's going to downsize the way the, the corporate structure is downsizing.
PAUL SOLMAN: So more government is your answer and we'll just leave it with you, Mr. Niskanen.
MR. NISKANEN: Let me tell you what happened in Europe. Twenty years ago, their unemployment rate was about half ours. Now it is about twice ours. Our median period of unemployment is about eight weeks. There closely approximates a year. That is what has happened to the social welfare state in Europe.
PAUL SOLMAN: So is it fair to say, as we end, that conservatives think that there's not as much of a problem as the people who are more liberal think there, there is, is that fair?
MR. NOVAK: There's a real problem. It's persistent. It's always there, but it's not so great. It's, it's--there are a lot of good things happening in this economy.
PAUL SOLMAN: Okay. Well, gentlemen, we have to leave it there. Thank you all very much.

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