How strong (and fair) is the U.S. economy?

The next time someone tells you that the U.S. economy is going great — regardless of their political affiliations — you might suggest that they dig beneath the misleading surface of a low unemployment rate and (at least pre-coronavirus) a bubbling stock market. In reality, there are two economies at play in modern America, one for a narrow slice of the very well-to-do, and another for the rest of the populace.

In a piece for the New York Times (link here) Nelson D. Schwartz calls it the “velvet rope economy,” borrowing from the title of his new book, The Velvet Rope Economy: How Inequality Became Big Business (2020).

Whatever the arena — health care, education, work, leisure — on one side of the velvet rope is a friction-free existence. Red tape is cut, appointments are secured, doors are opened. On the other side, friction is practically the defining characteristic, with middle- and working-class Americans facing an increasingly zero-sum fight for a decent seat on the plane, a college scholarship, even a doctor’s appointment.

There has always been a gap between the haves and have-nots, but what was a tiered system in America is morphing into a caste system. As the rich get richer and more businesses focus exclusively on serving them, there is less attention and shabbier service for everybody who’s not at the pinnacle.

A tiered system, to borrow from Schwartz, implies at least some ability to move up. A caste system, however, suggests being stuck in place. But maybe there’s more room for movement in the U.S. system than we think. The problem is, these days it’s very likely to be downward.

For evidence of that, check out the facts, figures, and stories behind those workers who lost jobs and careers in the wreckage of the Great Recession and never found work at their previous income levels. For example, Elizabeth White’s important book, 55, Underemployed, and Faking Normal (2019), which I discussed last year (link here), chronicles that dynamic and provides advice and support for those dealing with these circumstances.

Earnings gap

Much has been written about the widening U.S. earnings and wealth gap. For a snapshot view, take a look at the Social Security Administration’s aggregate wage data, based on taxable wages for 2018 (link here) — the most recent year available:

  • Roughly half of American workers are earning $30,000 a year or less;
  • Those earning a modest $50,000 or so are paid more than 70 percent of the workforce;
  • A salary of $100,000 puts someone in the top 10 percent of earners.

And as this 2018 Business Insider piece by Hillary Hoffower shows (link here), even in cities where the median income is higher, typical middle-class living expenses far exceed those averages.

Retirement funding crisis

America faces a significant retirement funding crisis. I’ve been beating this drum for over 10 years on this blog, in concert with many others. Things are not getting appreciably better.

Labor economist Theresa Ghilarducci (New School for Social Research) is one of the nation’s leading experts on retirement funding and policy. She wrote in 2019 (link here):

The bottom line is that Americans do not have enough retirement savings. This is not because we drink too many lattes, as financial writer Helaine Olen has argued for many years, but because employers and workers are not required to contribute to retirement savings plans above and beyond Social Security. Many low-income workers once had some retirement security; janitors and ladies garment workers weren’t rich, but they had pension plans at work. Some gig workers, like job-to-job carpenters, also had pensions when they were in a union. What we need today is a portable universal pension system that supplements Social Security.

Some may still deny there is a problem. But the number of poor or near-poor people over the age of 62 is set to increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million. If we do nothing in the next 12 years, 40% of middle-class older workers will be poor and near poor elders.  That is a problem.

One big event

As last week’s stock market drop precipitated by fears of a coronavirus global public health crisis illustrated, all it takes is one big scare to drive down values fast. Unfortunately, the trickle-down effects could reach even those who do not have much money, if at all, invested in stocks. Earlier this week, I was quoted by the Law & Crime site in a piece by Colin Kalmbacher on the potential employment implications of the coronavirus situation (link here). Among other things, I projected some of the long-term impacts if there are severe outbreaks in the U.S.:

“But in terms of how this affects the typical at-will employee, so much depends on how serious this turns out to be regarding both public health and economic impacts. Obviously if huge swaths of the workforce are infected with the virus, it will affect staffing and productivity wherever there’s a serious outbreak. Furthermore, if this reaches pandemic levels that trigger a 2008-style recession, then we could see layoffs in business sectors that are hardest hit. This would later trickle down to public sector and non-profit employment, as we saw with the Great Recession.”

In sum: At least since the early 1980s, our economy has become one of (1) flattening wages; (2) widening wealth gaps; and (3) reduced and eliminated employee benefits, especially retirement plans.

Ultimately, this understanding should translate into decisions we make at the ballot box. I hope folks keep these trends in mind during a 2020 election season that already looks to be short on facts and long on spin & lies. Hopefully there will be no velvet rope line when we show up to vote.

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