How to Save America's Middle-Class

Ideas in Action with Jim Glassman is a new half-hour weekly series on ideas and their consequences.

For many years, it has been portrayed in the media that America's middle class is dying. But if you look where people are going economically, the true picture might surprise you. What is the real state of America's middle class and what can Americans do to stay ahead?

Transcript

IDEAS IN ACTION with Jim Glassman

How to Save America's Middle-Class

JIM GLASSMAN:
Welcome to Ideas In Action, a television series about ideas and their consequences. I'm Jim Glassman. This week: Has America's middle class vanished? There's a lot of talk about the rich getting richer and the poor getting poorer in America. But is that really true? Joining me to discuss this topic are Don Peck, features editor of The Atlantic and author of Pinched: How the Great Recession has narrowed our future and what we can do about it. And Stephen Rose, research producer at the Georgetown University Center on Education and the Workforce, and author of Rebound: Why America will emerge stronger from the financial crisis. The topic this week: the forces changing the American middle class. This is Ideas In Action.

ANNOUNCER:
Funding for Ideas In Action is provided by Investor's Business Daily. Every stock market cycle is led by America's never-ending stream of innovative new companies and inventions. Investor's Business Daily helps investors find these new leaders as they emerge. More information is available at Investors.com.

JIM GLASSMAN:
Is the American middle class under siege? Well, that seems to be the accepted story line in the media. Numbers show that the middle class has gotten smaller during the recession. But would you be surprised to find out that a healthy chunk of Americans moved into the upper middle class over the past ten years? To be sure, reports also find that those who have lost their jobs or whose incomes have remained stagnant are facing some dire consequences. What is the true state of the American middle class? Don, you write this in your book: "The richest 1% of households earn as much each year as the bottom 60% put together. They possess as much wealth as-- the-- the assets that they own-- as the bottom 90%." Now, first of all, why is this a problem?

DON PECK:
Well, I mean, if-- if incomes are growing robustly, you know, throughout society, it's-- it's-- it's much less of a problem, I think. I-- I-- I do think, though, that, you know, on its face, extreme in-- income inequality is-- is unhealthy for society. One thing that I-- I note in-- in-- in my book, Pinched, is when I talk to successful entrepreneurs and financiers today, they can get work anywhere in the world, sell their products anywhere in the world. They circulate quite widely among international cities, you know, from San Francisco in New York to Tokyo, London, Shanghai. One person-- at the Aspen Ideas Festival a few years ago, you know, said, "If I relocate work-- from the U.S. to China, and as a result of that-- you know, two Chinese-- move up from poverty into the middle class and one American falls out of the middle class, well, maybe that's not such a bad trade." And-- and-- and in fact, that's kind of a morally laudable, you know, way to look at humanity. But it's cold comfort to the middle class in America today. And I think that what we're seeing with the evolution of the economy and with extreme income inequality is a cultural separation there as well, between the top 1% and the rest of society. The interests of the top 1% of society and the rest of the society simply aren't as aligned as they used to be.

JIM GLASSMAN:
So you think that the top 1% should be more inward facing and forget about what's going on in the rest of the world?

DON PECK:
I-- I-- I'm not making a "should" statement. I-- I-- I-- but I am saying that that difference, that-- that divergence in interests, as well as the evolution of the meritocracy, in which people who succeed today-- you know, they really do attribute their success entire-- entirely to their own efforts. And as a result, I think they feel less obligation to the communities of their birth and to society as a whole. I think those are significant cultural changes.

JIM GLASSMAN:
That is a pretty-- shocking statistic. Richest 1% earn as much as bottom 60% put together.

STEPHEN ROSE:
There's a lot of people that have talked about American decline, and it's a big story. And people flock to it whenever it exists. The wealth data are skewed because everyone under 40 has zero wealth. So in the life cycle effect-- I was a grad-- poor graduate student. And now, 30 years later, I'm worth a lot of money. You know, wealth-- you know, looking at wealth and not adjusting for the life cycle effect will really skew your data in inequality. And in the income inequality, there's many different ways. In my mind, it doesn't pass the smell test at all. 70% of Americans have HDTVs. 65% of Americans, when surveyed, said compared to your standard of living today, how does it compare relative to your parents at the same lifestyle? This comes from a general social survey. We've been asking this question every two years for the last 40 years. It's remarkably consistent. Even in 2008, 63% of people said they lived better than their parents.

DON PECK:
The last-- again, I-- I really think if you look at the last 30 years-- while-- while it's important to make certain distinctions between women and men, between people with a high school diploma and-- and other Americans, you know, with-- with-- with significant exceptions, you know-- things have gotten better for the middle class. You know, they've gotten quite a bit better. The last ten years have really not been good years for the U.S. Median wages have stagnated. Job growth generally-- has been very low compared to other historical periods. You know, the employment to population ratio today is-- is quite low-- compared to the last couple of decades. So-- so something seems to be going on today-- as a result of technological progress, as a result of globalization, and as a result of culture. And-- and that does make me really worry about people in the middle of society. Steve has talked about the segregation of-- of people into kind of thirds. And-- and I-- I do think that, you know, we-- we need to be cognizant of-- of the high school only population as well. I-- I-- I think that-- when you combine high school dropouts-- with-- people with a high school diploma, but no more, you're-- you're near 40% of the population, aren't you?

STEPHEN ROSE:
No.

DON PECK:
No?

STEPHEN ROSE:
It's gone down. It's about 35 now.

DON PECK:
35? Okay. But I mean, this is-- this is a significant portion of the population in and of itself. I don't want any viewer to think that I'm saying the middle class is gone, that there are no people that are prospering in the U.S.-- or that the fate of America is-- is necessarily in decline. But I think there are some real and worrying signals out there, particularly within the last decade, and certainly since this recession began. You know, middle skilled jobs, according to the economist David Autor -- were hit especially hard-- and this recession, much harder than high skill or low skill jobs. That's something that has been a pattern for-- for a decade or more. And-- and so-- so I think-- you know, we-- we-- we can't-- the past is an extremely important thing to look at-- but I-- you know, I think we need to look at what's happening recently, what's happening now, and-- and-- and ask what's going to happen in the future.

JIM GLASSMAN:
Don, in the September Atlantic Magazine, you wrote a cover story about the vanishing middle class in America. And I want to quote from it: "The Great Recession has accelerated the hollowing out of the American middle class and it has illuminated the widening divide between most of America and the super rich. Both developments herald grave consequences." What were the main indices that you discovered during your reporting that supported this thesis?

DON PECK:
I think actually one of the most important is a cultural index. You know, if you-- if you look at the family habits of-- Americans, the-- the middle class, moderately educated Americans who finished high school, but didn't get a four year college degree, those habits were very similar to the college-educated population in the 1970s-- in terms of rates of marriage, rates of divorce-- and-- and probably most important, rates of single parenthood. But today-- moderately educated Americans in their family habits-- resemble closely high school dropouts, characterized by-- high rates of divorce and-- and very high rates of single parenthood. So in 2008, for instance-- among college graduates, 6% of children born to college graduates-- were born-- to single parents. Among high school dropouts, that was 54%. And among that middle group, it was 44%.

So-- so things have really changed in terms of family patterns for the middle class over 30 years. And I think the problem is that parents who don't marry tend not to stay together. And that unsettles the lives of children, who tend not to do as well in school or in life thereafter. So what we're seeing in part is a cultural separation, one that has continued and accelerated in this recession, and one that makes me worried, frankly-- in the long run, not-- not-- not this year, not next year, but in the long run, about-- about mobility in America.

JIM GLASSMAN:
But here are you defining middle class? You just-- you just gave a definition, at least a difference be one group and another group. One group didn't finish college, and another group did finish college. But what about income?

DON PECK:
Well, yeah. I mean-- I mean, there-- there are many ways you can-- you can define, you know, the middle class. There's no-- there's no single, clear definition for the middle class in the U.S. Over 90% of Americans-- identify themselves as middle class. You know, I think-- I think one way to think about the middle class-- we like to have a broad middle class in America. So perhaps the middle of society, the 25th up to the 75th percentile, is-- is a decent way to--

JIM GLASSMAN:
So-- just-- just to be clear, are you saying that the 30% of Americans who have graduated from college, they're-- they're not middle class?

DON PECK:
Well, they-- they consider themselves middle class. But I think-- I think realistically-- they're-- they're really not. You can say they're-- they're upper middle class. But I mean, if you-- if you just look at income distributions, certainly, I think you would say the top 30%, top 20, 30% of society shouldn't really be called middle class. It's-- it's either upper middle class or-- or lower upper class.

JIM GLASSMAN:
So-- so, Steve, has Don gotten this right? He-- he talks about a widening divide between-- most of America and the super rich, and this declining middle class, cultural problems. Is that right?

STEPHEN ROSE:
Well, Don's look at education. And I think he's made a serious mistake in the following way: You can think of society now as kind of a third, a third, a third. The third of a four year, a graduate degree, the third has high school-- high school or less, most, a high school degree. And then, there's a broad middle in the third. Those that have two year degrees, those that have certificates, those who have two or three years of colleges, but no degree. Don is basically putting that middle third with the bottom third. And I would argue that their situation is much more similar and much more middle class than-- than the bottom third.

JIM GLASSMAN:
But he's also saying it's changing. You know, it may have been true 20 years ago that it was more associated with the-- with the upper third. Now it is more associated with the lower third. Is that-- that what you're saying, or not? But--

DON PECK:
Cer-- certainly as to family matters, yes, yes.

JIM GLASSMAN:
Part of your article, of course, is about-- is about this-- this widening gap in incomes as well.

DON PECK:
Yeah, yeah. And I-- I think-- I think that cultural change, first of all, you know, needs to be linked in part to changing economics. And-- and particularly, the changing economics of men. This cultural change is not purely the product of economics. But-- but it is, I think, partially one. It's-- it's-- it's a product of declining wages for lower skilled men-- the exodus of men from the workforce, all of which tends to-- make marriage less common for-- for-- lower skill and-- and middle skill Americans. Now, Steve's done some very good analysis-- that I think correctly shows that, you know, when you-- when you look over the past 30 years, you know, what-- we don't see a picture of-- deep distress for-- for middle America. We see-- you know, some-- some income-- increases. The last ten years, you know, if you-- if you-- if you simply look at median incomes-- have not been as good. Median incomes-- were flat. You know, over the last ten years, they've fallen. But I-- I think what's really important as well is to distinguish between men and women. You know, women have done really well in the economy. There's-- there's still some discrimination. They still don't make as much as men on average. But they've done-- they've done well over the past 30 years. Men have not. And-- and again, that feeds into-- what I'm-- one of the things that I'm really, really worried about is that when men are economically insecure, when men aren't in the workforce-- women don't marry them. But they do have children with them. So-- so again, that's-- that's kind of how I see the interaction of-- of these two factors.

JIM GLASSMAN:
And-- and you're saying that that's bad for the children?

DON PECK:
Yes.

JIM GLASSMAN:
And is it also bad for the-- for the men?

DON PECK:
It's-- yes, it's-- it's bad for the men as well.

(OVERTALK)

JIM GLASSMAN:
'Cause women are a-- George Gilder wrote a book about this 30 years ago, that women are kind of a civilizing influence for men. I guess we could debate that. There are many men that are civilizing influences on women as well. But--

DON PECK:
Well, no. There's-- there's good evidence that shows that when men are married-- they work harder, they work longer. Their income path improves-- in part because they're working more. But their wage path also improves. So-- and-- and they're happier and healthier. So-- so-- so, yes. The-- the-- the-- this situation is-- is bad for men. And you know, I-- I think that when you look at the transition of the economy from an industrial economy to a post-industrial economy, what you see is that, you know, many men are doing fine. But-- but a meaningful minority of men have simply not adjusted well. You know, from-- from 1980 up until now, you know, men really haven't been completing four-year colleges at a much higher rate.

JIM GLASSMAN:
And-- and they haven't adjusted well because-- because traditionally, they made-- many men made their livings off the-- the-- the sweat of their brow, or off the-- the strength of their back, and they're not able to move to this new kind of economy?

DON PECK:
Many have-- have not been able to. And why is kind of a puzzle. But, you know, you-- you think-- you can think of two basic responses, as-- as outdoor work and factory work declines. You know, one is you get more education-- and take advantage of the many opportunities for people with more education in this economy. The other is you move into the service sector. You know, men-- at least if you look at-- at-- at four year college graduation rates, you know, really haven't gotten more education. And certainly not-- not to the extent that women have. And-- and they've had trouble moving into at least some of the-- the-- the fast-growing service industries, like health care and-- and-- and education, that women have really loaded into. So-- so, yeah. I mean, why haven't men taken the signals of a declining industrial economy more to heart? I think that's a puzzle. Perhaps they will in the future. But by and large, they haven't today.

JIM GLASSMAN:
Now, you-- Steve, in your book, you acknowledge the number of-- the number of people who reside in the middle class has declined. But you argue that the membership in the well off category has jumped quite a bit, by 14% between 1979 and 2007. So can you explain that?

STEPHEN ROSE:
Sure. I mean, as Don said, there's no real definition of the middle class. On some levels, you can define things as a relative term, between the 25th and 50-- 75th percentile. That means the middle class will always be 50%, so it can't change, by definition.

JIM GLASSMAN:
Right, right.

STEPHEN ROSE:
So that's called relative comparisons. And then, I tried to do an absolute comparison.

JIM GLASSMAN:
So what's your conclusion? I mean, is-- is it that the-- the-- the middle class didn't gain as much? But is that because people move from the middle class to the upper class?

STEPHEN ROSE:
No. My conclusion is, is that-- society grew by a lot. And the middle class got a sizable share of that. They could have gotten more. They didn't. The inequality was there, that the people in the top 25%, the top quintile, got more than their fair share. But there's two ways to look at it. They got more than their fair share, and there was none left over for the middle. And they got more than their fair share. And the middle class partook a lot in the income increase over these decades.

JIM GLASSMAN:
Okay. You're saying-- Don, that it is-- you're disturbed by what's happening now and what it appears will happen in the future. You're looking at data that go back 30 years.

STEPHEN ROSE:
Well, people say different thing-- things. And it's -- so there are different debates that are going on. Basically, what happened is in the '90s, you had a tremendous amount of growth. And we reached the highest employment levels that we had in the history of the country. And-- the people at the bottom did very well. In many ways, they kind of overshot where they had been before. And as the economy didn't recover that well in the 2000s, people went sideways, number one. Number two, another issue that's hard to get in the numbers is health care expenditures have just exploded. So health care expenditures, from an economist's point of view, benefit people, but they don't show up in many different datasets as part of your income, such that a study now that showed that instead of wages stagnating, they would have been up 5% in the 2000s if you incorporated increased in benefits. But let me talk to the general point. And the general point is, what does the future hold? And obviously, we don't know what that is. There's always reasons to be concerned. In America, as opposed to other, let's say, advanced countries, and Japan and Europe, has had a larger underclass.

JIM GLASSMAN:
Right.

STEPHEN ROSE:
You know, going it on their own, and that means fail on their own. That's point one. Point two: This recession has been remarkably different than other recessions. Its depth, its continuity-- this recession is not just an American recession, as we see today in what's happening in Europe, as they totter on the edge of recession and maybe go backwards. So it's not simply what happened to America. Can the future be different? Obviously, it can. But if we look at the past, there have been many different times where people have written America off. And America just has unique advantages relevant to the other advanced countries. We have the biggest market. English is the national-- is the international language. We have a developed financial and judicial system. We have the best colleges. These are not gonna go away. If anything, there's a brain drain to America.

JIM GLASSMAN:
You-- you mentioned as one of our comparative advantages, education. And I guess you're probably talking about higher education.

STEPHEN ROSE:
Yes, I was.

JIM GLASSMAN:
I think that there is certainly concern about this knowledge gap in the United States. Only 30% of Americans-- kind of a shocking statistic to a lot of people-- have graduated from college. And that's a number that's not going up, right?

DON PECK:
Well, it's going up. But it's going up slowly.

JIM GLASSMAN:
It's going up very-- very, very slowly.

DON PECK:
Yeah.

JIM GLASSMAN:
How important is that-- that four year degree today? Would we be less concerned about it? Is it-- is it really the-- the technological knowledge that people can gain right out high school, or maybe they should gain it in high school? I mean, how are we gonna solve this problem?

DON PECK:
I think, you know, a college-- a four year college degree remains a very good investment. And-- and you know, anyone considering going to school should-- should-- should be encouraged to-- to do so. I think we should-- encourage-- you know, much better K through 12 education, so that more people can go to and complete college. And yes, I think we also need to build-- more opportunities for-- for people who don't go to and complete a four-year degree. I mean, we need to continue to invest in our-- in our community colleges. You know, I-- I-- I think we-- we-- we really should try to build-- more pathways into the workforce-- for people who don't go to college at all, or at least not initially. You know, because we're so focused on four year college, I think often people who finish high school and aren't going on to college struggle the career paths through manufacturing that used to exist, don't exist. I'm personally encouraged by-- the proliferation of career academies in-- in U.S. high schools, which are schools which-- within schools that allow-- students to combine classroom learning with-- with technical skill, and very significantly, apprenticeships-- you know, which allow them to see, you know, real jobs and-- and what it takes to get there. You know, even if they don't go on to get a four year degree.

JIM GLASSMAN:
But are we getting to the point in America where in order to stay in the middle class, or certainly to join the upper middle class, that you need not just a college degree, but a graduate degree--

STEPHEN ROSE:
Okay--

JIM GLASSMAN:
--because of global competition among--

STEPHEN ROSE:
At the center, a couple of months ago, myself and the center director, Tony Carnivale, published a thing called The Undereducated American. So we certainly think, as Don said, that more post-secondary education is needed. And there'll be slightly more people getting a BA. You should understand that 30%-- for our labor force as a whole, there's only two countries in the world that have more than 30%. So, I mean, it sounds like a small number if you hang out only with college grads. In a world historic sense, that's a very high number, especially since so many people have two year degrees and certificates. So in the future, what I would change sort of thing, it's not you need a BA to get in the upper middle class. You need some post-secondary. I should note that what you major in matters a lot. So people with two year degrees, 28% of people with two year degrees earn more than the BA median. That is, there's a lot of variation.

JIM GLASSMAN:
Because what? They're in computer sciences or engineering--

STEPHEN ROSE:
They're in computer science. They're in engineering. They're in--

JIM GLASSMAN:
So it's not necessarily how long? It's-- it's-- it's the subject you choose to specialize in?

STEPHEN ROSE:
The subject you choose. And also, there's just individual variation. Some people didn't get that four-year degree, but still have that self-motivation. And one of the biggest jobs of two year college graduates who are making a lot of money, is that they're just managers at small businesses. They're worked their way up. They've built their businesses, or they've been rewarded. So I don't believe-- I think it is wrong to say that all you need is a four-year degree.

JIM GLASSMAN:
What-- what's your advice to young Americans? I think-- I think some of what-- Steve said had some implicit advice-- who want to stay in the middle class or move into the upper middle class?

DON PECK:
Yeah. Work hard-- stay in school. Get more education. And-- and-- and really-- you know, focus a lot of people today in school are going into business majors-- social science majors-- thinking that there's really kind of gold at the end of the rainbow from those majors. You know, the-- the-- the skills that are really in demand today involve, you know, math, science, engineering. I wish more Americans would-- would pursue those paths. But you know, I-- I-- I think for-- for people who do work hard, who do pursue their educations and continue them, and particularly for people who-- focus on those kind of harder majors-- you know, things-- things are going to be just fine.

JIM GLASSMAN:
We're seeing these Occupy Wall Street-- protests. And you know, there may be many reasons why people are-- are-- are down there on Wall Street and-- and elsewhere. But certainly, the stated reason is that all the gains are flying to Wall Street. There is this division in society. Do you think this is reflecting-- a broader-- feeling in the nation?

DON PECK:
I think there's a lot of discontent in the nation-- certainly. And I-- yeah, I think people are-- are angry at Wall Street. I-- I don't think that means that-- that, you know, millions of people are-- are about to take to the streets. I think-- I think the thing that's special about Wall Street, in a sense, is that, you know, most Americans really have very little problem with people who've done well as a result of say, entrepreneurial efforts. You know, where-- where it's clearly the product of their hard work, their-- their personal genius, say.

JIM GLASSMAN:
Steve Jobs?

DON PECK:
Steve Jobs. You know, to some extent, what's happened on Wall Street-- seems a little bit different than that. I mean, Wall Street seems, in some sense, like a partially rigged game, you know, where-- the U.S., you know, provides an implicit guarantee against failure. And-- and people on Wall Street-- itself, you know, take 100% of the gains when they do not fail. And I-- I think that's really-- the source of much American frustration with-- with Wall Street in particular today. And I think that's partially justified.

STEPHEN ROSE:
Wall Street's an easy target. And they cer-- it's certainly odd that they are able to get so much of the pie. They have served a function. But as-- you know, I agree with Don. They-- they certainly rigged the game such that they're getting a lot of the g-- gains when they win, and some of the gains even when they lose. They do take a hit. And a lot of rich people lost money, 'cause they had a lot of their-- the finance industry has contracted by 10%. So that's-- 800,000 people losing their jobs. The-- a lot of people had money in their own companies, like Lehman Brothers. And they-- they took big hits. So it's not like they took no hits. But it's-- you know, it goes back to an old debate of productive and unproductive labor. Somehow or other, the middle people seem to be the ones. Even though that companies-- have ways to save a lot of money with this extra finances, even though people use it to buy their houses, even though people use it-- take loans to send their kids to college, there's something a little perverse that they can take a little cut off the top. And-- so it-- it's a mixed bag. And they-- they are the piñatas of-- today's world, when people think that the rich are doing too well. And they've earned it a bit.

JIM GLASSMAN:
Thank you, Steve, for your "opiñata" . And-- and thank you, Don.

DON PECK:
Thank you, Jim.

JIM GLASSMAN:
And that's it for this week's Ideas In Action. I'm Jim Glassman. Thanks for watching.

ANNOUNCER:
Keep in mind that you can watch Ideas In Action whenever and wherever you want. To watch highlights or complete programs, just go to IdeasInActionTV.com, or download a podcast from the I-Tunes store. Ideas In Action: because ideas have consequences.

For more information, visit us at IdeasInActionTV.com. Funding for Ideas In Action is provided by Investor's Business Daily. Every stock market cycle is led by America's never-ending stream of innovative new companies and inventions. Investor's Business Daily helps investors find these new leaders as they emerge. More information is available at Investors.com. This program is a production of Grace Creek Media and the George W. Bush Institute, which are solely responsible for its content.


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Featured Guests

Don Peck

Features Editor at The Atlantic

Don Peck is a national-award-winning writer and Features editor of The Atlantic. He writes about economics and culture, among other subjects, and commissions many of the magazine's cover stories.

Before becoming a journalist, Mr. Peck was a principal at the Advisory Board Company, a large strategic research firm and management consultancy. He has a B.A. in government modified with economics from Dartmouth College and a Masters of Public Affairs from the Woodrow Wilson School at Princeton University.

Stephen J. Rose

Research Professor at the Georgetown University Center on Education and the Workforce

Stephen J. Rose is a Research Professor at the Georgetown University Center on Education and the Workforce where he studies the interactions between formal education, training, career movements, and earnings.

Dr. Rose has held senior positions at the Department of Labor, the Joint Economic Committee, the National Commission for Employment Policy, and the Ways and Means Committee of the Washington State Senate. For five years, he worked in the policy office of the Educational Testing Service (ETS) studying the interaction of skills, education, and employment.

Episode Clips

Middle-Class Excerpt: What is Going Wrong with America's Men?

Don Peck discusses the problem men are having as America moves away from an industrial based economy.

Middle-Class Excerpt: People are Moving Up

Stephen Rose explains that over the last 30 years people across all economic lines have moved up.

Middle-Class Excerpt: Occupy Wall Street

What role does the instability of America's Middle class have to do with the Occupy Wall Street movements?