Back in the heady days of July 2007 — shortly after the White House celebrated National Homeownership Month, and before the term “subprime mortgage” became ubiquitous in our political discourse — the New York Times commenced a series titled “Age of Riches,” exploring the lives of those who had grown fantastically affluent in America’s “New Gilded Age.” The inaugural entry in this series likened the concentration of wealth in the early 21st century to those of the mid-1910s and the late 1920s. IRS figures show that the top 1 percent of income earners collected nearly 23 percent of America’s adjusted gross income (AGI) in 2007, compared with 12.3 percent in 1987. The top one-tenth of 1 percent of earners received almost 12 percent of AGI, up from 8.1 percent in 2001. As the 2008 election campaign gathered steam, all the top Democratic presidential contenders were railing against income inequality, with John Edwards reprising his shopworn “Two Americas” theme. On the Republican side, Mike Huckabee got into the act.
Then came the financial meltdown and the global recession, which pushed inequality to the back burner. Even the Times has changed its tune: “The rich, as a group, are no longer getting richer,” it reported in August. “Over the last two years, they have become poorer.”
Yet Wall Street’s implosion did not change the fundamental dynamics that have been exerting upward pressure on inequality. The interaction between a rising skill premium and polarizing cultural trends continues to foster social stratification. As Brookings Institution scholar Alan Berube points out, the current jobless numbers vary significantly based on educational attainment: In October, the seasonally adjusted unemployment rate among those with less than a high-school diploma was 15.5 percent; among high-school graduates without a college degree, it was 11.2 percent; but among those with a bachelor’s degree or higher, it was only 4.7 percent. Berube argues that the Great Recession “could actually accelerate a longer-run increase in inequality, especially among workers with different skill levels.”
Congressional Democrats are seeking to mitigate inequality through higher taxes on upper earners and an expanded welfare state. Republicans generally oppose these initiatives; yet when it comes to tackling the economic disparities and anxieties of the Information Age, they have struggled to coalesce behind a clear center-right agenda. Meanwhile, a small cluster of journalists, think-tankers, and policy wonks have been trying to formulate one.
They will find a veritable armory of intellectual firepower in Creating an Opportunity Society, the new book by Brookings scholars Ron Haskins and Isabel Sawhill. Packed with a dizzying array of statistics and reform ideas, the book lays out a detailed blueprint for promoting economic mobility. Its recommendations are a centrist mix, which comes as no surprise: Haskins worked for the Bush (43) administration, Sawhill served in the Clinton administration, and the authors acknowledge that they “do not always agree.”
Mobility, not inequality, is the key indicator of economic opportunity. The two are not necessarily correlated: If income inequality has gone up since the early 1980s, that doesn’t necessarily mean income mobility has gone down. Indeed, a 2007 Treasury Department study concluded that “relative income mobility has neither increased nor decreased over the past 20 years.”
On the other hand, structural forces have widened certain gaps between high- and low-education workers. The gradual disappearance of well-paying low-skill jobs — which, contrary to popular views, can be attributed more to technology than to foreign trade — has had a depressing effect on mobility. Haskins and Sawhill reckon that only 11 percent of children from families in the bottom income quintile graduate from college, compared with 25 percent of children from the middle income quintile and 53 percent from the top quintile.
Broadly speaking, they advocate a three-pronged strategy for boosting mobility: Improve public education, encourage work, and strengthen families. Their education proposals include expanding pre-school programs, implementing national achievement standards, establishing more “paternalistic” charter schools (modeled on the popular KIPP system) and undertaking a robust evaluation of these schools, providing low-income and minority pupils with better college-prep services, simplifying the federal student-aid process, lifting the Pell Grant ceiling, and revamping state college funding in hopes of spurring the recruitment of more disadvantaged students.
Incentivizing work was a central component of welfare reform — which Haskins, as a House staffer, helped devise — and it is a central component of the Haskins-Sawhill mobility plan. The authors support enlarging the size and scope of the Child Tax Credit, increasing child-care funding, and bolstering job-training programs. They also want to build on the successful Earned Income Tax Credit (EITC) and experiment with “EITC-type wage supplements” for workers who either don’t have children or don’t have custody of their children.
In their section on family formation, Haskins and Sawhill address a longstanding social crisis: the surge in nonmarital births. In 2007, nearly 40 percent of all U.S. births were outside of marriage, up from 34 percent in 2002, 18.4 percent in 1980, and 5.3 percent in 1960. Nonmarital births remain predominantly a lower-class phenomenon. “In 2007,” the authors write, “the least educated women were six times as likely as the most educated women to have a baby outside marriage.” Last year, according to the Census Bureau, only 40 percent of African-American children lived with two parents, compared with 78 percent of non-Hispanic white children.
University of Chicago economist James Heckman, a 2000 Nobel laureate, stresses that the children of less-educated women are receiving far fewer parental resources than the children of more-educated women. These parenting disparities are fueling unequal life outcomes: Heckman believes that “about 50 percent of the variance in inequality in lifetime earnings is determined by age 18,” and that “most of the gaps at age 18 that help to explain gaps in adult outcomes are present at age five.”
But the secret to escaping poverty is no secret at all: As Haskins and Sawhill note, “those who finish high school, work full time, and marry before having children are virtually guaranteed a place in the middle class. Only about 2 percent of this group ends up in poverty.” They tout this as “the success sequence,” and concur with the observation by journalist Jonathan Rauch that marriage has become “the great class divide of the new century.”
So should the government be bankrolling marriage-training projects? Pres. George W. Bush launched three major marriage-education experiments, known as Building Strong Families (BSF), Supporting Healthy Marriage (SHM), and the Community Healthy Marriage Initiative. While Haskins and Sawhill cite various problems with the BSF and SHM experiments, the social-science literature makes them “cautiously optimistic” that Bush’s marriage programs “will produce meaningful impacts over the long run.
All told, Haskins and Sawhill estimate that the combined price tag for their smorgasbord of policies (only some of which are mentioned above) would be just north of $20.5 billion. Not so long ago, that was considered a lot of money; but not in today’s Washington, with its mega-bailouts, $787 billion stimulus packages, and trillion-dollar health-care legislation.
This is not to say that all of the Haskins-Sawhill ideas are worth pursuing. (American Enterprise Institute scholar Charles Murray, among others, is deeply skeptical of early-childhood intervention; he is also the intellectual leader of the “too many people are going to college” brigades.) But the authors have thought long and carefully about their subject matter. In many ways, their fair-minded and illuminating discussion is even more valuable than their proposals. Creating an Opportunity Society overflows with keen social and economic insights. It deserves the attention of conservative and liberal policymakers alike.