The market is now flooded with books that claim to explain the flaws in the American economy that have led to stagnation in the income and prosperity of working-class Americans. But one book stands out for its originality and the depth of
Oren Cass, a senior fellow at the Manhattan Institute and the former domestic-policy director for the Romney presidential campaign, begins his book on workers and the economy, The Once and Future Worker, with a succinct and surprising summary of his views on the American economy and its impact on families and communities. He says that over the last four decades, growth in gross domestic product has been “solid” but that the family income of the working class has fallen, marriages have collapsed, and opioid deaths have “spiraled,” in large part because the nation’s policymakers focused on having a large GDP, raising living standards, building and maintaining a generous safety net, improving the environment, and ensuring ever bigger and cheaper flat-screen TVs. But we gave up too much to get these benefits. Whatever else it has achieved, the economy is “teetering atop eroded foundations, lacking structural integrity, and heading toward collapse.”
Cass’s argument goes beyond what is wrong with the economy. In a recent article in The American Interest, Cass claims that workers, their families, and their communities have “no standing” in an economy that emphasizes production to the exclusion of almost everything else. Cass appears to have written his book, which cuts against the grain of much Republican thinking, to convince us of the flaws in emphasizing low taxes and expanded production. After all, as the economy was tripling in the years between 1975 and 2015, a host of indicators showed the struggles of workers, especially males; workers’ families; and the communities in which they live: four decades of declining labor-force participation by males (and, more recently, by females as well), stagnant income for the working class, and rapid rises in suicides and drug addiction, especially addiction to opioids.
Cass wrote his book in part to lay out the terms of what he calls his “working hypothesis,” namely that “a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy.” To help us understand his thinking, Cass divides the story into three parts. In the first, he expands on his working hypothesis by examining the nature of the labor market and the tools available to change the labor-market outcomes mentioned above; in the second, he explores the policy areas that have the greatest influence on the labor market; in the third, he examines the factors beyond the labor market that influence work and well-being.
Cass’s book offers three central arguments, all at least partially original, beginning with his “working hypothesis.” He shows that at the moment, and for at least the last three decades, the greatest threat to prosperity for the working class has been the growth of an economy that does not provide enough good jobs and therefore does not nurture the development of strong families and communities. Policymakers’ focus on welfare programs — which cost $1 trillion per year now, having grown beyond even the vision of Lyndon Johnson, the author of the War on Poverty — has diverted our gaze from disintegrating families, declining communities, and the rise of what sociologists Anne Case and Angus Deaton have called “deaths of despair.”
The wage subsidy that Cass proposes is arguably his most important policy proposal to fight the decline in work and the rise of discouraged workers and families. The goals of a wage subsidy are both to encourage work and to improve the financial status of low- and moderate-income working families. The biggest cash work subsidy now in the federal arsenal is the earned-income tax credit (EITC), which provides working families around $70 billion per year in earnings subsidies. Although the EITC enjoys nearly universal support among both Republicans and Democrats, and although it is one of the nation’s most effective programs in reducing poverty, it has four important limitations. The first is that nearly all its benefits go to families with children. So millions of low- and middle-income working families and individuals, including many who would like to save money for marriage and starting a family, are left out. Second, in nearly all cases, the EITC is paid only once a year, thereby reducing the chance that families can count on a steady stream of income to supplement their earnings, pay bills, and develop the habit of routine saving. Third, because the EITC is paid once a year, its benefits are “opaque” (Cass’s word), usually preventing recipients from understanding where the money comes from. Fourth, the structure of the EITC means that, as workers earn more money, the value of their EITC begins declining at about $19,000 for a married couple with two children. Beyond $19,000, the work-enhancing effects of the EITC decline until they disappear entirely at about $50,000.
Enter the wage subsidy, which has several advantages. Assume the subsidy is set at half the amount of the difference between a target wage and the actual wage earned by a worker. If the target wage is $16 an hour and a worker earns $10, the subsidy is $3 an hour, bringing the worker’s wage to $13. Employers would put the additional $3 an hour in the worker’s paycheck and deduct the $3 from his tax payment to the federal government. This approach ties redistribution directly to productive employment. In addition, because work rather than unemployment is being subsidized, the wage subsidy does more to increase work than welfare programs do. Finally, a benefit to workers and employees that is not immediately apparent is that the wage subsidy supplants part of the means-tested benefits paid for through the safety net. Welfare benefits transfer a great deal of money to low-income workers and households, but they do so in a way that discourages work in most income ranges. By contrast, the wage supplement would provide a work incentive, because more work would mean a larger cash subsidy.
An especially important, if somewhat subtle, effect of the wage subsidy but not of welfare payments is that the subsidy could be designed in such a way that there would be little increase in public spending. The key would be to reduce welfare benefits and use the money to finance a wage subsidy, thereby getting the relatively greater benefits of the subsidy for the same cost as current welfare spending.
When Cass turns to factors beyond the market in the third part of his book, he pulls off the gloves and writes strongly about the serious problems of the welfare state. Besides Charles Murray, I cannot think of an author who more clearly abhors welfare and its effects on markets and adults. The basic problem is also the most obvious — if you give stuff away, many people will not work to maintain their well-being or will work less than they could or should. This moves the working class in entirely the wrong direction. Cass wants an income gap between what people can get from government for not working, or working less, and what they can earn by accepting available jobs, even if they are low-income. If this is the calculus of employment, people will find ways to increase their income through hard work and education, abetted by Cass’s wage subsidy. Cass is bursting with additional ideas about how to achieve this outcome.
This book and its policy proposals mark Oren Cass as one of the nation’s most original and forceful policy thinkers. We should try some of his ideas, beginning with the wage subsidy.