factors led to the purported economic “golden age” of post-World War II
America? How has the middle class fared since that age? And what can
policymakers do to maximize the opportunity of Americans to maximize their
potential today? I recently discussed these questions, and many more, with Jim
Jim covers economic and tax policy for The New York Times. He has formerly worked at Vox as a policy and politics editor as well. He is the winner of the 2007 Livingston Award for Young Journalists and is the author of the book The Riches of This Land: The Untold, True Story of America’s Middle Class, released in August of this year.
What follows is a lightly edited transcript of our conversation, including brief portions that were cut from the original podcast. You can download the episode here, and don’t forget to subscribe to my podcast on Apple Podcasts or Stitcher. Tell your friends, leave a review.
Pethokoukis: I’m going to start by
just reading a couple of sentences from the book:
“Nearly every serious study, regardless of methodology, confirms a devastating story about the middle class since the 1970s, which is to say they all show the American economy delivering far less for middle-class workers than it used to and far less than those workers had grown to expect in the years after World War II. Working-class Americans haven’t seen their earnings grow like they used to, and they haven’t seen them grow in proportion with the more than doubling of the US economy.”
All right. Let’s start there. Why should I compare how workers have done since the 70s to what some people call the “golden era” — the decades of the 1950s and 1960s? Why should those decades be the baseline? They seem like a very odd period in American history, coming right after a massive war. Why should I view them as a golden age that should be the target for us to replicate?
Tankersley: I think in no uncertain terms I think you should do it because this is America, and we believe in the most optimistic possibilities for ourselves. I think that the evidence is clear that the time after World War II is the time when our middle-class boomed the most, when the largest number of people were pulled into it, and when typical workers did the best. I understand there is an argument out there that this is some sort of outlier born of unique conditions to the war. In the book, I go through a bunch of ways why I think that’s not the case, but even if it were historically anomalous, it also represents what’s possible — and what’s possible without everything going right. So I wouldn’t even want to say that it’s the high watermark that we should aspire to get back to. I actually think we can have an economy that works even better for everyone than the one that we had after World War II. It just happens to be the best example we have of what is possible above and beyond what we have now.
More importantly, I think it’s just really fundamental to how we see ourselves as a capitalist economy and as a free enterprise nation. The fact that we have this example of a time when prosperity was widely shared as the economy grew quickly and unemployment was low shows us the possibilities of the type of governance that we have and the type of economy that we have in a way that I think is just seared into our national psyche and has dictated our politics for decades now. So those decades are important because of that.
Do you worry that people will look back on the 50s and 60s, not as a target for future growth, but as a case study that we need to replicate? And are you concerned people will then listen to the nationalist populist types who say things like, “Those were great years, and then we screwed them up by letting in a lot of immigrants starting in 1965”?
I think it’s a really important point, Jim, because it’s something I’ve heard a ton from people as I’m out talking about the book. There is this nationalist-populist idea that this era was notable in part because of restrictions on immigration, to which I like to point out that we actually had a huge influx of workers into the American labor force in that time to compete with incumbent workers. Theoretically, if you were an immigration restrictionist, one of the reasons that you think immigration is bad is because you believe new workers compete with existing workers for jobs and drive down wages. But we actually had 20 million women enter the labor force in the period we’re talking about right now and that had no ill effect whatsoever on wages for incumbent male workers.
I actually think there’s really good evidence inside the numbers here as to why that particular argument is wrong, but from a broader point, you’re absolutely right. There’s a bunch of things people look at from that post-war era and say, “Oh, what made it great was union rates and nothing else,” or “Industry mix and nothing else,” or like you just said, “Marginal tax rates and nothing else.” But the virtue of detailed economic research is that we can actually pull out what matters. The thing obviously that I really focus on in the book is a thing hardly anybody talks about from those years, which is the breaking down of barriers for women of all races, for men of color, for immigrants, and the ability for them both to contribute more by joining the labor force and then by taking higher and better-skilled jobs and getting the education needed to do those jobs.
This is a quantifiable effect. The research that I draw on the book from Chicago and Stanford shows that 40 percent of the per-worker GDP since 1960 comes from those forces. It is the secret sauce of that era that no one ever talks about. Yeah, I do worry we can take the wrong lessons from that era and from lionizing those years, but I think we can take the right lessons as well. That’s why I think this is an important message for today: because we have the ingredients for another boom like that sitting in the American economy right now. We have the capability to unleash workers again, and so that actually is replicable. It’s not a one-off. It’s not anomalous. It is a lesson grounded in data that we can apply to our own times today.
The way I would put it is this: Economically speaking, we would like people to do what they’re best at, and we would like them to achieve their full potential. For a really long time in this country, we did not offer anything close to a comprehensive education to wide swaths of Americans, whether they were rural or, in particular, African Americans. Over time, we have created systems that provide better education. They’re still not perfect, and they still do not offer everyone the same opportunities. However, just that improvement in education has allowed more and more young Americans to grow up and do what they would be best at, and therefore contribute the most that they can.
In the same way, discrimination restricted people. Young black men who should have grown up to be doctors — because that’s what they would have been best at — were instead forced to be janitors because they weren’t allowed into medical school. Women did not deploy their talents outside the home because society basically restricted them from doing that.
From an economic standpoint, that’s a loss to a country.
That’s a loss in productivity. To use a “bro” metaphor: If you have a baseball
team and you basically restrict every single person on the team to be
right-handed, you’re going to lose the benefits of having left-handed pitchers.
So, when you start opening up a team to left-handed people who were previously
discriminated against, the whole team works better, and everyone can do more.
I think the story I’m telling here is that human capital improvement — the fulfillment of human potential — helps everybody. In particular, it helps the people who are finally allowed to do what they’re best at.
I want to talk a little bit about immigration. As you look at the data, are you confident that immigration has not been bad for America and has not been bad for native workers, as the nationalists contend?
Yeah. I’m not only confident that it hasn’t been bad — I’m
confident that the research shows us it’s been very good.
Of course, it’s been very good at the high end. You know
this, but the research on immigration and its positive spillover effects on
entrepreneurship and innovation shows that innovation is the source of the new
industries and the new good-paying jobs. It’s how we create capabilities for
workers that they could not have imagined themselves, but allow them to produce
and contribute even more and be fulfilled even more. I mean, so much of that is
a positive spillover story with immigrants. It just that’s what the research
shows, as I cite a bunch of it in the book.
Then, on the overall comprehensive level, I just think that the broad economics literature on immigration — as opposed to people cherry-picking data, or a couple of studies from one or two researchers — shows that there are really good things to come from immigration. This includes immigrants who do not come in with the high skills that people often use as a split-the-baby kind of way of talking about immigration.
Immigrants generate economic activity. They buy things. They start businesses. They do a lot of positive things for the economy and people. The restrictionist-nativist argument always downplays those positive effects. Instead, it pushes narratives about competition — and wages in particular — that act as if the economy would be best if we had the fewest workers possible. Just ask yourself the counterfactual: Would the American economy be much better off today if we deported 40 million randomly selected Americans? I don’t think anybody would seriously argue that.
I think they would disagree with the word random. There may be 40 million they’d like to deport, but it wouldn’t be random.
Well, sure. It is a different argument to say the American economy is worse off because we have too many people with low skills, whether they are immigrants or not than to say we have an economy that is made worse off because of the presence of immigrants. I don’t really subscribe to the view that you could deport a large group of people and make the economy better off. I don’t see any empirical research showing that. I also think there’s a lot of research showing that we’re better off because of immigrants’ contributions over the years.
Are you confident that it would be an accurate picture of the past 40 years of economic history if I were to say middle-class living standards have basically gone nowhere since the late 1970s?
No, I don’t think so. I think that’s an important point, and it’s a subtle one. I think everyone’s living standards have gone up because of technological change in the United States, and that’s an important thing to point out. It’s true, we still have massive problems economically. We have far too much poverty, far too much homelessness. We have far too many people who cannot afford the economic security that I associate with being middle class in the United States. But I think, just looking at medical care alone, people’s living standards have gone up. I mean, obviously, there have been some real challenges, in particular with the opioid crisis.
I don’t think it’s true for all people that their living
standards have gone up and quality of life or life expectancy has gone up. I
think we can say that the middle-class has suffered a widespread income
stagnation for much of the last four decades in inflation-adjusted terms. At the
very least, if we want to argue about deflators and other technical adjustments,
we can say that the incomes of the middle class have not kept pace with their
expectations. We’ve seen millions of people fall out of the middle-class during
the repeated economic crises over the last couple of decades, and that millions
more who should have ascended to it have not.
I think those are non-controversial observations, but to get to them, you do have to stipulate, “Yeah, look, it’s better to be alive today in the middle-class than it was in 1970, just because of the pace of technological change in a lot of places.” I just think Americans take that for granted. We’ve always expected that we’re going to have improving technology and that our lives will be better than the lives of the generation before us. It’s just that we also expect income gains and an expansion of the middle class on top of that.
Regarding these “technical points” about how you do the measuring, do you think they’re just technical, or do you think it’s actually super important to understand what’s happened by actually looking at what the economic data say? Because certainly, when I look at the economic data, I think it’s wrong to lump the 70s, 80s, 90s, and 2000s all in together when you actually see very different things. You see a weak period in the 70s and 80s. Then I think you see a stronger period since then. Yet when I hear this argument, always — “since the 1970s, wages have been stagnant” — and oftentimes that’s using one inflation measure. Certainly, if you use a different inflation measure, you come up with a far more robust number, and the pre-tax/after-tax comparison yields an even better number.
I think the better version of this story often gets dismissed because it is a politically inconvenient story for some activist groups who want to make the case that everything’s gone wrong in this country for 40 or 50 years. Maybe they don’t like trade, maybe they don’t like what’s been going on with taxes, and maybe they don’t like what’s been going on with business. Or they don’t like immigration. They’ve made their singular argument about the economy with a specific inflation measure and a specific time frame to reference. Do you feel that to be the case in the story of stagnation? Is their story about right, or do you think it’s been overstated?
I think we can tell the story of stagnation in more granular chunks that make it more nuanced, which I understand is a less sexy answer. I guess I’m going to partially agree with you and partially disagree. I think we have to acknowledge that the mid- to late-1990s were an incredible period for the United States economy.
Why don’t we talk about the 90s instead of the 50s and 60s, do you think? It’s kind of weird.
Well, because I think they loom in so many people’s consciousness as a pretty quick blip. They last less than a decade. And Then what follows them? A recession. A recession basically right after George W. Bush takes office, which I think we can fairly attribute to President Clinton. I mean, it was very early on in the Bush terms, right? I don’t think you blame Bush for that. Still, coming out of that, you have the decade of the 2000s, which even before the financial crisis started was the weakest decade for job growth in the history of modern economic statistics in America. Then you have the 2008 financial crisis, which is just brutal for household wealth, particularly at the median.
Then there was a really slow recovery under President Obama — nowhere close to the kind of recoveries people had experienced in the past. The recovery finally starts to near 90s levels — not actually to the level of the 90s, but there were pretty good income gains of the median in the final couple of years of Obama’s term. Then there was pretty good income growth in the first few years of Trump’s term, and then another debilitating recession hit.
If you look at that story, what stands out there? It’s not the brief periods of “awesome.” It’s the long stretches of “not-very-good” punctuated by debilitating crises. I think workers at the median and in the broad middle-class acutely feel the strains of that in ways that I am not sure that the people with 401Ks or big investment portfolios have felt. I don’t think the people in the top 5 percent and above who have suffered some wealth losses up and down with the market during those recessions have felt anything close to the economic insecurity in that time that typical workers have.
It can be true that it’s politically inconvenient for the folks pushing a narrative of complete and utter stagnation over this time to acknowledge those periods of goodness. It’s also politically inconvenient for the people at the top — who would rather just live with those long stretches of malaise for most workers in order to keep things humming — to concede that income and economic insecurity is a real thing in the middle and has been for a long time. I think these are both true. It’s a complicated story, but I do think it adds up to a middle class that is neither as strong nor as secure as it could be, or as it has been for all the stuff we’ve been through now. You can say that without saying “the whole thing has been crap the entire 40 years,” for sure.
To get back to one of your core arguments — and what makes your book interesting and unique — what are the key barriers to Americans maximizing their potential today? And what do you want to do about them?
I like being able to talk about this part of the book a lot, because, to me, this is a book about the potentially transformative power of human freedom. So often, that means just getting out of the way and letting people be their best. And sometimes it means giving them the support to be able to rev at their best — both are important.
As I run through in the book, there are some regulatory barriers that still exist that keep people from starting businesses that compete with incumbents, or occupational licensing barriers that keep people from being able to just get in and do the work that would pay them more. I think that’s a really important part of the story of what’s holding people back.
There are more complicated things too. I think there remain enormous disparities in education by race in this country. If we can’t find ways to bring up the quality of education for non-white students in America, we are just leaving human potential on the table. We need to do more to fix that. And I think that our number one untapped source of great economic potential in America is our workforce of women. I think that they are criminally under-invested in. If you just look at the splits of who gets venture capital in this country, women get very little of it compared to men. I think that the path dependencies of Silicon Valley and of the financial system produce that, and it is not a verdict on the relative merits of female entrepreneurs.
I also think that we have a childcare crisis in this country, which has been exacerbated by this pandemic. As my female colleagues have been writing about in recent weeks in The New York Times, women are picking up the wide share of those burdens during this recession. It is forcing them out of the workforce, and it is forcing them to cut back on their hours. That’s just an economic loss. If we can find a way to address both the supply and demand sides of the childcare crisis and have affordable available childcare for everyone in this country, I really do think we could just unleash a wave of human potential for women in the economy. Those are all very mechanical things.
The last thing, which I would be remiss not to mention, is that there is still real discrimination in the economy. There just is. There are all sorts of evidence for it. It exists across industries: Women of all races and men of color are just not hired, promoted, retained, retrained, and put into top jobs at the same rate as white men. It is still a white man’s economy, and so long as that’s the case — so long as discrimination persists — we are leaving money on the table for all of us in the economy.
Do you think we will look at this period, with what is hopefully a once-in-a-century pandemic, as a moment when we realize that we need to get very serious if we’re going to come out of this thing strong and vibrant? Do you think we will realize we need to be very serious about public policy and make sure we have policies that maximize the potential of individuals and businesses? Do you think that when we look back on this period, it will have been a launching pad for the US economy, or are we just going to muddle through it?
Man, I wish I knew that. I really do.
I’m worried it’s going to be the latter, and we’ll see a lot more risk aversion in the economy, and that we won’t try to make the best of this period.
Yeah. I do worry about that. I mean, I’m an optimistic person overall, particularly about people. And I’ve been really impressed by the ability of people and businesses to adapt in this crisis, but there’s only so much you can adapt to. From a policy level, we definitely got a lot wrong, and that has held people back from being able to adapt. I’m not even sure we’ll know in five years whether that has been the case. I mean, we could have a relatively quick GDP snapback next year once the vaccine becomes available and still not have really changed structural things about the economy and who participates in it, or we could start changing those things and still have other setbacks that are totally unrelated. I’m not sure we’d know.
It would be nice if it was in the conversation. Washington right now, for example, is just so focused on how much money a next stimulus bill needs to have. I think that’s an interesting and important question, but that there are other really big and important questions about who you invest in and how — and how you support the right things that really aren’t top-of-mind in policy conversations. I’m sorry that I don’t have a better answer about how I think it’s going to play it out. But I think it’s absolutely the right question.
My guest today has been Jim Tankersley. Jim, thanks for coming on the podcast.
Jim, thanks for having me.
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