From Shared Prosperity to the Age of Insecurity

HOW WE GOT HERE

I have pointed out to the Congress that we are seeking to find the way once more to well-known, long-established, but to some degree forgotten ideals and values. We seek the security of the men, women, and children of the nation. That security involves ... [using] the agencies of government to assist in the establishment of means to provide sound and adequate protection against the vicissitudes of modern life—in other words, social insurance.

Franklin Delano Roosevelt fireside chat, June 28, 1934

Many of our most fundamental systems—the tax code, health coverage, pension plans, worker training—were created for the world of yesterday, not tomorrow. We will transform these systems so that all citizens are equipped, prepared, and thus truly free to make your own choices and pursue your own dream. Another priority for a new term is to build an ownership society, because ownership brings security and dignity and independence. In all these proposals, we seek to provide not just a government program but a path, a path to greater opportunity, more freedom, and more control over your own life.

George W. Bush, acceptance speech at the Republican National Convention, September 2, 2004

Tales of families, particularly middle-class and working-class families, experiencing upheavals and setbacks because of job losses, health-care emergencies, and stagnating wages have become increasingly common. Economic uncertainty has always existed, of course, but the breadth and depth of the problem in twenty-first-century America is alarming. In fact, until relatively recently many people assumed that secure jobs, rising incomes, and upward mobility were an inherent part of American society. Times have changed.

AGE OF SECURITY: THE NEW DEAL ERA

In the broadest historical perspective, today's widespread sense of economic uncertainty is not so much a new phenomenon as a regression to an older state many Americans believed had been safely left behind. Before the Great Depression most jobs in America were precarious: wages were unstable, pensions and health insurance were unheard-of, and labor laws were almost nonexistent. However, in the wake of that economic calamity, a new social ethic emerged that sought to provide Americans with greater security in both good times and bad.

Beginning in the 1930s, the federal government took a more active and formal role in protecting Americans from the "hazards and vicissitudes of life" in modern capitalism. Throughout that decade laws were enacted to govern working hours and establish minimum wage levels. And with the passage of the Social Security Act and the Wagner Act in 1935, Americans gained access to old-age and unemployment insurance and the right to counteract the power of employers through collective bargaining. These kinds of laws dramatically expanded the number of workers with secure jobs, living wages, and robust benefits.

Through large-scale social insurance programs like those grouped under the rubrics of the New Deal (in the 1930s) and the Great Society (in the 1960s), presidents from Franklin D. Roosevelt through Gerald Ford sought to shelter Americans from economic ups and downs by expanding programs like unemployment insurance and disability benefits and by providing health insurance through Medicare and Medicaid to the elderly and the poor. Many private employers, spurred on by a powerful labor movement, also came to embrace the collectivist approach put in motion by the New Deal; they offered workers good wages and health, disability, and pension benefits as a way of rewarding them for their hard work (and as a way of fending off more intrusive government intervention in the private labor market).

Over time, an unspoken agreement was struck among government, labor, and big business that shaped a hybrid public/private system for providing security and prosperity to tens of millions of Americans. From the 1930s through the 1970s, the government took responsibility for tempering the effects of the business cycle through economic policies based on the theories of the twentieth-century British economist John Maynard Keynes, coordinating national monetary policy and fiscal policies to minimize the depth and duration of recessions. It also helped train young people for jobs (through public support for colleges and universities, subsidized student loans, and scholarship programs) and helped stimulate mass consumption by supplying subsidies for housing and funds to develop a national highway system. Yet the government was careful not to go too far, abstaining from centralized planning or meddling in corporate decision making. For their part, workers tacitly agreed to minimize labor unrest in return for promises by companies to provide stable employment, good benefits, and wage increases that reflected workers' fair share of the profits gained through rising productivity.

Although this three-way social contract among government, employers, and workers varied in its effectiveness and excluded many women and minorities, it nevertheless enabled several generations of Americans to prosper. Countless statistics tell the story. Here are just a few: From 1950 to 1970, the yearly income of the median worker more than doubled, and those at the bottom of the earnings distribution saw their earnings increase even more. Family income increased by 56 percent between World War II and the mid-1960s. There was an upgrading of the entire employment structure in the 1960s, with strong employment growth in middle- and high-wage jobs and only modest expansion in low-wage jobs. From the mid-1940s to the late 1960s, America became a more equal society as family income inequality decreased by 7.5 percent. Pension and health-care coverage were on the rise. At the peak of this system, in the late 1970s, private pensions covered 40 million people—49 percent of private wage and salary workers—while private health-care coverage reached more than 80 percent of Americans. Affordable housing became more available and home ownership almost doubled, growing from 17 to 33 million. Thanks to government initiatives like the G.I. Bill (1944) and the Higher Education Act (1965), 2.3 million veterans went to college and the number of low-income students attending universities nearly doubled between 1965 and 1971.

Collectively, these forces helped to create a large and thriving middle class whose growing wealth stimulated decades of unprecedented economic expansion. President John F. Kennedy's words "a rising tide lifts all the boats" summarized the experience of hundreds of millions of Americans,...