The Forgotten Americans: An Economic Agenda for a Divided Nation
Isabel Sawhill says she was “dumbfounded by the 2016 election.” Having already started her book she had to address new, fundamental questions. Who voted for President Trump and why? Which economic policies are best for the Trump era and beyond? The result is a well-researched and informative book.
Sawhill defines the “forgotten Americans” as “working-age adults (twenty-five to sixty-four) without four-year college degrees whose family incomes put them in the lower half of the income distribution.” They account for 38% of the working age population in America. A segment of the forgotten Americans, the white working class, “voted overwhelmingly” for President Trump.
A primary discontent is “the lack of well-paid jobs.” That discontent is reflected in the drop in the portion of the white working class in the workforce; their labor force participation in 1971 was 93 percent and by 2015 it had fallen to 80 percent. Discontent also is reflected in the gap between their income and that for whites with a four-year degree. What Sawhill calls “elites” earned 46 percent more in 1971 and that grew to 77 percent in 2015.
A lack of education and skills is a culprit in this wage gap and things are likely to get worse. In 1973, the percentage of jobs requiring a high school education or less was 72 percent; that will fall to just 36 percent by 2020. To drive the point home Sawhill shares the anecdote of the Siemens corporation offering 800 new jobs in North Carolina; of the 10,000 applicants, less than 15 percent passed “a basic test in reading, writing, and math.”
What should be done to address this discontent? Sawhill believes that the standard policies of both the Republicans and Democrats are “fake remedies.” More economic growth is the standard Republican remedy. Sawhill says economic growth is a mystery to us, and we don’t really know what drives long-term growth. This focus on growth also diverts attention from a focus “directly on jobs and wages.” Moreover, a focus on growth can lead to policies that actually hurt the country; for example, restraints on trade and immigration.
As to the Democrat’s focus on income redistribution Sawhill says that political backing for more redistribution is hard to find. Americans are conservative, and they think in terms of equal opportunity not equal incomes. The revenue needed to make a real impact on income distribution is very high. To get the country back to the income distribution of the 1970s for the top 20 percent, Sawhill concludes that $1 trillion dollars would have to be redistributed each year. The most radical redistribution proposal calls for universal basic income, an approach in which people are paid whether they work or not.
Sawhill presents a long list of novel policies to help the forgotten Americans. What sets her policy parade apart is that she motivates all the proposals with her research which shows that economic success depends on family, education, and work: “if an individual does just three things—graduates from high school [at least], works full-time, and marries before having children—that person’s chance of being poor plummets from around 14 percent to around 2 percent, and his or her chances of being middle class rises to over 70 percent.”
The family, education, and work theme is crucial to narrowing the economic, political, and cultural divide in America and winning support for her policy proposals. Jobs is the issue that “transcends party.”
Her policy proposals are centered on “the value of work and the importance of jobs and wages.” Among her four substantial proposals the effort to reform America’s social insurance system is the most ambitious. Sawhill explains that the current social insurance system covers certain risks and fails to cover others. If an American loses a job there is unemployment insurance to help weather the storm for a period of time. If a person cannot work due to disability, there is long-term disability insurance called Social Security Disability Insurance. And if a person cannot work due to age there is old age and survivor insurance, better known as Social Security.
She proposes to add two new accounts that mitigate risks that are not covered. The first is to address long-term or structural unemployment with a Lifelong Learning Account to fund retraining of workers. The second is to address the need for family or medical leave with a Paid Leave Account.
The challenge is clear and readily acknowledged by Sawhill. Significant reforms or tax increases are needed to assure the existing social insurance system will remain solvent into the future, but, even with that threat, most if not all major attempts at reform have failed. How can adding two more accounts to the system help to achieve reform? Sawhill asserts that the two new benefits would be widely supported, and this would help to motivate the reforms.
Sawhill is likely to be unduly optimistic on the chances of reform. Still, her book contributes to her worthy goal to “catalyze a new discussion about how to create a jobs-based prosperity and a less divided nation.”