September 24, 2012
His piece today notes that many people who start college don’t finish and that many people got themselves into bad mortgages that they could not afford in the housing bubble years. He therefore concludes that government really cannot do much to ensure low income people a path to the middle class:
“What also cannot be wished away are on-the-ground realities that impede middle-class status for more Americans. Only one-third of children born to the poorest fifth of Americans graduate high school with at least a 2.5 grade-point average and without having become a parent or been convicted of a crime, reports a Brookings Institution study. Brookings economist Isabel Sawhill notes that gaps have widened between the children of poor and well-to-do families on school test scores, college attendance and family formation. In his book “Coming Apart,” conservative scholar Charles Murray makes similar points.
Government has only limited power to offset these disadvantages. The appeal of the American Dream is that it’s disconnected from nasty facts and choices.”
Of course many of the realities on the ground reflect deliberate government policy to redistribute income upward. In the last three decades the government has done everything possible to remove barriers that obstruct manufactured goods from entering the United States. This policy coupled with the over-valued dollar threw millions of manufacturing workers out of work and put downward pressure on the wages of less-educated workers. Instead the government could have pursued a “free trade” policy that focused on reducing the barriers that prevented foreign professionals (e.g. doctors, lawyers, economists) from training to U.S. standards and working in the United States. This would have had the effect of driving down the wages of U.S. professionals. That would reduce the cost of health care, legal services, university education and many other items, thereby raising real wages and producing large economic gains.
The government could have eliminated the special low tax status that the financial industry enjoys, thereby allowing it to grow as parasite on the rest of the economy. It is also the source of many of the highest incomes in the country.
And, the government need not have strengthened patent and copyright protection. These monopolies redistribute several hundred billion dollars a year from consumers to drug companies, software companies and the entertainment industry. (Yes, this upward redistribution is the topic of my book, The End of Loser Liberalism: Making Markets Progressive.)
In short the government could have done a lot to improve the plight of lower income people just by not pursuing the policies that have worsened their plight. Of course it could have also raised the minimum wage in step with productivity growth, as it had done in the quarter century following World War II. If this had been the policy, the minimum wage would be close to $18 an hour today. That might make a difference to the middle class aspirations of many workers.
Comments