Changes in the American Middle Class

Aug 15, 2012

Both left and right agree that the U.S. income gap is widening. It's harder to agree on how to solve it. Fred Setterberg yearns for the solidarity and job opportunities of his childhood. Rea Hederman says a new tax structure and programs encouraging individual initiative will grow the middle class.

JULIA TAYLOR KENNEDY: Welcome to Just Business. I'm Julia Taylor Kennedy.

It seems every analysis of the 2012 presidential election boils down to one major issue: the economy. Since economists like Joseph Stiglitz and Occupy Wall Street protesters highlighted a growing gap between rich and poor in the United States, politicians and thinkers across the political spectrum have acknowledged that the middle class is shrinking. But when it comes down to accountability and responsibility, there remains an array of lenses through which to view our current economic situation and how we can improve it.

Our first guest says the United States needs to recapture a sense of national solidarity that he remembers from his childhood in an industrial town in Northern California. Fred Setterberg is a long-time author and journalist. His latest book, Lunch Bucket Paradise, is a novel loosely based on his own upbringing from the 1950s through the 1970s outside of Oakland, California.

FRED SETTERBERG: I had always wanted to write about where I had come from; that is, a blue-collar suburb, a working-class suburb, born right at the end of World War II. I felt that it was an area that really hadn't been covered in popular culture or literature. These weren't the affluent suburbs of John Cheever short stories, and it wasn't the mythical world of television's Leave It to Beaver. This was a moment of formation and promise. If we're thinking it's 1950, 1951, we're only a half dozen years after the end of the war.

Looking back now, I feel in the 21st century that there's often a kind of triumphalist hue that World War II takes on, but, of course, it was one of the great catastrophes of history. Our country, the United States, then stepped into the world with muscles flexed and with a sort of economic power that we had never realized before. But the psychic nightmare of this terrible global bloodletting was still there with us.

I wanted to capture the contradiction in this moment, when the world was opening up for our country as a whole and it was also opening with great promise for working people, who had been bloodied by the war, they had been bowed by the Depression, and now they found themselves capable of buying their own 1,100-square-foot home, the sorts of homes that aren't built today, but at that point was really a castle for so many people who had their own homes, their land expropriated, lost during the Depression. Now they were starting to climb the ladder into working-class and perhaps even middle-class life.

So much new came out of the New Deal and then World War II. We had veterans who could return to college on the GI bill. We had federal guarantees on the purchase of quite modest houses. We had retirement. Most of all, we had expanding wages.

It's easy to think of these things as a constant in American life, but, of course, they weren't. They were spurred into action by the great jumpstart of the war and American productivity, unmatched anywhere on the globe, then redirected to domestic consumption and foreign import. We didn't have cities that were in ruins, smoking. So we were poised in this extraordinary moment to take great advantage of all this.

But still, for my generation, born in 1951, the sense of expansion and possibility was a constant, a least through our childhood and adolescence. For our parents, they saw what were more than just ruts in the road. They saw those deep crevasses in which whole families and communities could fall into and disappear. They understood, in ways that are only too clear to us today, that they could happen again.

JULIA TAYLOR KENNEDY: It seems that what you are saying is that, in a couple of generations' time, we are relearning the lessons that this generation learned.

FRED SETTERBERG: Well, I sure hope we're relearning them, although I fear, in fact, that we haven't drawn quite the right lessons. The legislation that made a safer banking system following the bank runs of the 1930s were then dismantled piece by piece in the 1980s and 1990s, leading us to where we are at this moment.

JULIA TAYLOR KENNEDY: It seems to me that you describe your own awakening towards the end of the book, discovering you weren't satisfied with the labor of your father and uncle—your father was a metalworker and your uncle worked in a ketchup factory—discovering that you were against violent warfare, with a bit of regret. Did I pick up on that right? And if so, why regret?

FRED SETTERBERG: I think you did. This is a novel, so a lot of it is imagined. But I'm really speaking of a felt experience that is my own. There's a scene in the book where the boys, our narrator and one of his friends, are putting a roof on a house, which is striking to me. This was a not uncommon thing, that teenage boys, in their middle teens, would be expected to do a man's labor, putting a new roof on the house. That was not uncommon in those days.

So they're up there on the roof and they're looking at the industrial skyline of their neighborhood. They are seeing the factories, the canneries, the car-assembly plants. They're belching smoke up in the air. And they're thinking, "Boy, I don't want to do that." I see this. This is work, and our dads and our uncles, they talk about that stink in the air that comes from the ketchup factory. Well, that's the smell of money. But those kids have had an easier life, and they are not so interested in lining up and going into the factory.

Of course, the truth is that those things will all disappear, those factories, those assembly plants. In the neighborhood that I'm describing, which is around Oakland, California, they will be gone in 10 to 20 years. That industrial base of unionized hard work that pays wages you can raise a family on—they're going with it, too. Those kids, of course, can't know that then. If there's a note of sorrow in their perception, it's an advanced nostalgia for disappearance. I'm not sure that's quite possible.

I think in my own case I recognize—and I think I came to recognize particularly in writing this book—that I not only was raised by a solid, loving family, which is so important, but I grew up in a neighborhood that really functioned like a small town. The suburbs at that point were really still in formation. They had yet to become the gigantic sprawl and the kind of anonymous life of suburbia.

But I think there was something else that was going on, too. I think what I experienced throughout much of my childhood and teenage years was something that I didn't have a word for until I went to college. That word is "solidarity." We lived in a kind of working-class solidarity, where there was not a great deal of difference in the income of the people who lived in the community. People who had educations and middle-class jobs moved on somewhere else. There were people who had poor jobs, the jobs that just didn't bring in enough money. They disappeared. Their families were gone after a while.

In that community, where income equality was pretty much a given, there was also still a sense that we need to look out for each other, that this is not a world in which everything is in its place and will stay that way. Again and again, I had the experience of other people's parents looking out for me in ways that now I look back and see as extraordinary. It required a kind of persistence and sacrifice and involvement with people who are outside of your family.

I think this is extended acutely in the state of California—but I think throughout the country—in the kinds of policy decisions that people made. In my town of Jefferson Manor, you had people who had never stepped foot on a college campus themselves voting routinely for school bonds and for the construction of universities, a state university and a state college system that would have an enormous effect on the lives of their children. We know precisely where we are today with that in California and throughout much of the nation.

When I went to college, it was virtually free. I could work in a factory during the summers and then have enough money to live—because I was working as a Teamster, getting good wages—have enough to live for the rest of the year and go to school. The costs were nothing.

JULIA TAYLOR KENNEDY: So there is this nostalgia for solidarity. There are good things about this era.

There are also some things that have gotten better in terms of race relations and other things that you address in the book. Is there room for both in our future?

FRED SETTERBERG: I sure hope so. One of the things that I talk about in the book is a kind of crazed racist sentiment that pervades this largely white community, their great fear of the black city of Oakland next door. Much of the book is set in the late 1960s, and so it's a time when the cities are burning. It's not just the campus riots, but there are the race riots in the big cities from coast to coast, and a kind of terror in these communities for what that means. What will racial equality mean for white people who are on some of the lower rungs of the economy? That's really a constant pressure, too.

The town that is my model for this community is today an extremely diverse community. It's still a blue-collar community, but the new arrivals now are not from Mississippi and Nebraska and other parts of the country, part of the internal migration chasing the jobs of World War II; they are folks from Latin America and Asia.

JULIA TAYLOR KENNEDY: When we last spoke, you had just finished this stunning book called Under the Dragon, which was a combination of photographs and essays about the rich diversity of Oakland and other parts of the San Francisco Bay Area. I remember your optimism about the possibilities that this diversity brings and your emphasis on that, rather than concerns about tensions that could arise, which was extremely refreshing.

I wonder if you still feel optimistic when you think about the future of our culture or where that optimism may lie a few years on, post financial crisis, in the midst of new political angst that we're experiencing.

FRED SETTERBERG: I certainly feel optimistic about the prospect of America renewing its compact again and again with new arrivals. We spent a lot of time with folks whose parents or themselves had just come to the United States from all over the world. That's really where so much of the energy in the culture is right now. That has always been true. We're a country that's constantly renewing itself. I think that's a very, very good thing, and I certainly don't feel anything different, despite the mess that we're in politically and economically today.

JULIA TAYLOR KENNEDY: As we try to move forward and look for a new direction, do you think it's a matter of trying to renew this solidarity or mutual caring, understanding that you described from your childhood? Is it going to be something where we can't really predict what it will look like in order to have a positive future for our society?

FRED SETTERBERG: I think that's precisely what we have to do. I suppose the word "solidarity" is going to be locked up in the cupboard of the 1930s—and that's fine—but a kind of communitarianism, where we recognize that—was it Ben Franklin who said that we all hang together or we hang separately? He was speaking of the outcome of the revolution, but it's no less true for us today. The extraordinary gap in wealth is an obscenity. We all recognize that. How do we actually galvanize political will in order to have public policy decisions that are going to make a rich world for us all—rich in every kind of way?

In our state here in California, we have benefited so extraordinarily from a public education system that has helped stock the people who created Silicon Valley, the movie industry, the aerospace industry, biotech. All these things draw so much of their life upon the arteries of public education funded by the taxpayers for our mutual benefit. I feel like until we have leaders who can articulate that in persuasive ways and, as important, ears that are open to the clarity of that message—until we get to that point, we haven't really begun again.

JULIA TAYLOR KENNEDY: Fred Setterberg, I really appreciate your time and this clearheaded look at the time you grew up in. Thank you so much for joining me on Just Business.

Thank you so much, Julia. I really enjoyed it.

JULIA TAYLOR KENNEDY: Fred Setterberg is author of Lunch Bucket Paradise. He spoke to us from Oakland, California.

Fred Setterberg longs for the solidarity of his youth. But the conservative Heritage Foundation's Rea Hederman has a different impression of that era in American history. Hederman says we need new models to grow the middle class, models that encourage individual initiative.

REA HEDERMAN: I don't really like looking back to the halcyon days of the 1950s, 1960s, and 1970s. It was great for America, but it's a period that I don't think we're ever going to be able to replicate, and it's foolish to try.

For the first reason, if you think about where the world was, the world was basically recovering from World War II, and a good portion of the world was under the boot heel of communism. The United States was able to grow rapidly because we basically had very little competition. Europe was rebuilding. Japan was just starting to rebuild. Obviously China and Russia were a non-factor, even a negative factor, under communism.

The second thing is, think about again what the families were like in the 1950s, 1960s, and 1970s. If you take a look, just about entirely, the family bread winner was a male. That is completely different from the society we have today. Just to give you an idea, in the 1970s, more men were college-educated. If you take a look at the numbers today, it's completely flipped, where women are more educated. Take a look at the implications that has on earnings.

Finally, it's important to realize that throughout society education has always become important. When we shifted from manufacturing, that still required some type of high school education. That's a higher skill level than when we were an agricultural society back in the 19th century, when many school kids were lucky to make it past third or fourth or fifth grade. Take a look at that versus where we were, going up to the high school. Now as society moves on and uses more and more technical components, it obviously requires even more education.

So I think, instead of saying what we can do to make sure we can go back to the days when you were promised a middle-class lifestyle if you just had a high school education, we need to think about how we can make sure these people get the best education possible.

What are the other types of vehicles opened up if they graduate from high school? Can they get a good technical degree? Can we make community college better to make sure that they are able to capture part of the rewards of the technological society that we're now embracing? I don't think we want a society that kind of exists right now, that if you don't graduate from high school, you're permanently trapped at the bottom. We know that's a problem. But the question is, how can we educate them and how can we help them and move them forward?

JULIA TAYLOR KENNEDY: We talk a lot about responsibility on this program and talk with people about where they see responsibility and accountability lying for big issues. Obviously in this country income inequality and mobility is a big issue right now. What responsibility do you think the government has in guiding the economy to a healthier place, bottom line?

REA HEDERMAN: I think the government has a role to play, primarily through its existing vehicles, making sure that there is a place for education in the public society. How can we sit there and try to figure out the most efficient way to get people a good level of high school education?

I'm skeptical of an increased role of government involvement in the redistribution of income. If you take a look at the current numbers, we already have a very progressive government in terms of the taxes it takes and how it redistributes them and how much money those people at the bottom receive in terms of transfer payments. I don't want to see the government doing more there.

I think it's also important that the government work hard to try to set a level playing field through the tax structures, to encourage small business just as much as it can encourage big business.

JULIA TAYLOR KENNEDY: On the other side, what responsibility do business owners have, if any, to be working on remedying this income inequality problem to ensure that those who aren't earning enough can have a decent life?

REA HEDERMAN: For business owners, a lot of it has to do with figuring out how you can keep your business stable and expand. Expanding business means you have a tighter labor market, which means basically everybody is doing better.

Then the other thing to think about is how businesses can have better relations with the workers. As we move forward in this society, workers may want compensation in different ways. We know that fringe benefits have become a bigger role from compensation, where people sit there and say, "You know what? Instead of taking so much just in salary, maybe I want more vacation time, maybe I want flex time, maybe I want more telecommuting, maybe I want more job training," instead of just higher take-home salaries.

JULIA TAYLOR KENNEDY: But some would also argue that benefits have shrunk quite a bit in recent years, with less health care, less pension benefits, those sorts of things.

REA HEDERMAN: The actual value of benefits has increased pretty dramatically. Benefits are about a third of all compensation. Health care, for example, has grown from 3 percent to about 8.5 percent of compensation over the last several years. What's happening is, businesses are having to spend more on these programs—

JULIA TAYLOR KENNEDY: That are delivering less.

Exactly. You could argue that.

Part of it is, for example, pensions, the shift from a defined-benefit pension, where you work for 30 years or you work for 20 years and get a set pension, that's going to change, but it's changing mostly for a good reason. That's because we're living so much longer than we were. If you take a look at when these pensions started, you worked for 20 years, then you retired, and then you died in about 20 years.

JULIA TAYLOR KENNEDY: I understand all that. The point is, I think, that some of the benefits that workers may be looking for might be changing, but I don't think the package of benefit services that they are looking for is necessarily growing.

I understand your point. It's basically the idea that, from a business owner's perspective, you are paying more, and workers could feel like they are getting less of a value, in large part because of the increasing cost of health care and health insurance premiums.

JULIA TAYLOR KENNEDY: That makes sense.

Anyway, you were talking about what responsibility business owners might have to address issues of income inequality, if any.

I was talking about how making sure that basically—as I said, the primary reason that a business wants to be able to sit there is to figure out how they can remain in existence and expand. I think that's their first responsibility, figuring out how they can be profitable. Then, if they can figure out how to be profitable, if they can expand, then they can hire new workers. That is obviously the number-one important requirement for businesses.

The second thing is that they can look at—I guess this is what I'm trying to get at—maybe more flexible labor arrangements with workers. In Europe you have the idea of flex time. With more women in the labor force, more educated women in the labor force, you could see business workers trying to figure out a better way to accommodate working mothers compared to the traditional—you get three months, but you're still expected to work a 40-hour week. These types of flex time arrangements could be, in the future, very helpful for workers as they go advance through their work career.

JULIA TAYLOR KENNEDY: I see three major players. There's the government, there are business owners, and then there's the individual. It seems like a lot of this responsibility then falls to the individual to try to advance and try to get on that mobility train.

REA HEDERMAN: Yes, that has always been the American dream. You came here and the job of America was to give you the opportunity and hopefully give you some of the tools, through education. But then it's kind of up to yourself how you choose to work out in life. If you're somebody who really works super-hard, we want you to be able to try to make it to the top. But you're not promised to make it to the top. A lot of it depends on, unfortunately, sometimes luck, but it also depends on your own kind of intrinsic qualities.

That's kind of the reason why I think America has always been so attractive to immigrants, which is the idea that if you came here, you could really just about be anything you wanted to be. If you look again throughout our history, it has always been kind of, to a large extent, up to the individuals, through hard work, going out there saying, "I can make it if I do the right things." Doing the right things really hasn't changed. It's the idea that trying to get somewhat of an education, trying to be married before you have children, and the idea of being able to work and find a job—and avoid drug use and alcohol, because we know that's also a high factor in downward mobility.

So I think by doing some of those things and avoiding what we call poor personal choices, a large part of the American dream is still in reach. Let's remember that about 90 percent of all individuals are better off than their parents. So we're still a very mobile society in terms of growing wealthier. Unfortunately, those people who don't do better than their parents—we can look and see that part of what they did is some personal responsibility, with alcohol and drug use or, unfortunately, perhaps they are products of a broken home, which wasn't exactly their fault.

JULIA TAYLOR KENNEDY: You are talking about leveling the playing field and making a consistent tax policy, which I actually think we're hearing from both sides of the aisle. Of course, the details of it are very different. But that principle of trying to make society fair, to have equal levels of opportunity for people on all rungs of the ladder—those are things you hear from people across the political spectrum.

Obviously, it's a year of a presidential election, but is there a way that there can start to be a conversation emerging that lets go of partisan ideology, where people can talk to one another and hammer out a compromise rather than have a win-loss scenario in our political sphere?

REA HEDERMAN: Absolutely—maybe rather bizarrely, I'm a little bit more optimistic on the future of some type of bargain in the next couple of years, mostly because I don't think we have a choice. I think if you take a look at where our fiscal situation is, you are going to have to see some massive discussions about what's going on at the table. The president came out and he was looking hard at the corporate tax rate. If he is reelected or if Mitt Romney is elected, the corporate tax rate obviously will be an important player, with people talking about whether we can lower the rate to make us more competitive with the rest of the world. If we do that, can we make it revenue-neutral, for example, by giving up certain credits?

So I think that's on the table. Then again I think you are going to see some hard bargaining about what's going to happen in terms of this overall spending with the entitlement programs. Are we going to make some more major changes to Medicare or Social Security, given the size of the deficits and the gross debt that we have?

I think I'm optimistic that after the election year, you will be able to see some bargaining on some of these issues. I would think corporate tax is probably primed for people to take a look and say, let's go back to 1986 and kind of use that as a template, with the grand bargain, where we were able to throw out a lot of credits and deductions, lock the lobbyists out of the room, and senators and members of Congress from both parties were able to come to an agreement that basically people point to still as a model of good public policy because it lowered the rates for everybody. It equalized so much of the tax code, where the tax rates you paid didn't depend nearly as much on your accountant. That's the template, I think, that a lot of people are going to use going forward, when we address not only the corporate tax, but hopefully, down the road, the income tax as well.

JULIA TAYLOR KENNEDY: Rea Hederman, thank you again so much for joining me on Just Business.

REA HEDERMAN: Thank you for having me, Julia.

JULIA TAYLOR KENNEDY: That was Rea Hederman. He's assistant director of the Heritage Foundation's Center for Data Analysis.

That wraps up this week's look at the changes in the U.S. middle class. I'm Julia Taylor Kennedy. Thanks to Terence Hurley and Emil Chireno for their contributions to this weeks' podcast. Thanks to Tony Higgins and Yacht for this weeks' music. And thanks to you, our listeners, for joining us. We're happy to hear from you. Please send questions and comments to [email protected].

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