Author Note
Brian G. Fogle, Community Foundation of the Ozarks.
Correspondence concerning this book review should be addressed to Brian G. Fogle, President and CEO, Community Foundation of the Ozarks, 425 E. Trafficway, Springfield, MO 65806. Phone: (417) 864-6199. E-mail: bfogle@cfozarks.org
I must admit that I felt a bit hesitant when I was invited to write a book review for the eJournal of Public Affairs. It has been—what?—4-plus decades since I was asked to compose a book review, and I still have a recurring nightmare in which I am forced to complete a final exam for a college class I had never taken—and I feared that writing the review might trigger another. Yet, the invitation was for a public-affairs mission that I am deeply committed to and grateful exists at Missouri State University, and the review gives me a chance to share some information about a subject I thoroughly enjoy—economics—but rarely have an opportunity to discuss.
I was asked specifically to review Unbound: How Inequality Constricts Our Economy and What We Can Do About It, a book I have recommended to many others, including friend and colleague Greg Burris, who is also the guest editor of the eJournal. The book is authored by Dr. Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth, and a former economist for the U.S. Congress Joint Economic Committee. Her book joins several others written in the past few years addressing economic inequality, such as Oren Cass’s The Once and Future Worker, Isabel Sawhill’s The Forgotten Americans, and Thomas Picketty’s Capitalism in the 21st Century. Even the billionaire hedge-fund founder of Bridgewater Associates, Ray Dalio, has called income inequality the most pressing issue of our time, though it received little discussion in the latest election. Unquestionably, the topic ties into the notion of “community ownership” and who really comprises community—that is, just certain segments of the population that happen to have the majority of the wealth and power, or indeed everyone who should have access to “life, liberty, and the pursuit of happiness”? In this year of the COVID-19 pandemic and a presidential election, these latter events have certainly overshadowed income inequality, but both have been tremendously impacted by it. Those falling into the lower income quartiles have been disproportionately impacted by both the health and economic jolts caused by the pandemic, and, during the campaign, the anger and bitterness felt by so many still recovering from the last economic downturn were intensified by their belief that they were “left behind.”
To use the oft-quoted Mark Twain line, “There are lies, damn lies, and statistics.” Numerical facts, however, are a good place to start, and the numbers related to how the U.S. economy has changed in the past 50 years are, in this case, irrefutable. From 1963 to 1979, gross domestic product (GDP), the most widely used measure of economic growth, increased at an annual rate of about 1.7%., and distribution—the economic term for who gets what is produced—roughly followed that same pattern. In other words, family income grew roughly in proportion to overall economic growth. However, since that time, as Boushey highlights, that pattern has changed significantly. From 1980 to 2016, roughly 90% of households experienced an income growth rate that fell below the overall growth rate of the economy. The bottom 40% of income earners averaged wage increases of just 0.3% annually. Adjusted for inflation, this means that average household income grew from $26,400 to $29,800 in the past 4 decades for this group.
Income inequality is even worse depending on race and ethnicity. Today, 30% of White households make over $100,000 annually, compared to just 16% of Black households. At the beginning of the “roaring” 1920s in the United States, the top 1% held 51% of the country’s wealth. That chapter did not end well, with the start of the Great Depression closing out that decade. By 1978, the top 1% of the population controlled just 23% of all wealth, a much more equitable distribution. Although we are down from the second peak in this century’s first decade, which ended with the Great Recession, it is worth noting that, currently, 42% of all wealth is held by the top 1%. Boushey points out that corporate and tax policies have contributed to this disparity over the years. In the mid-1970s, Fortune 500 CEOs made about 25 times more than the average employee of their respective company; today, it is 270 times more. Income mobility has likewise suffered. Stanford economist Raj Chetty’s research showed that, for those born in 1940, nine out of 10 ended up making more than their parents; however, by 1980, only one half made more than their parents. The trend has continued to decline since then.
Boushey places part of the blame on supply-side economics, first adopted as public policy during the Reagan years. Proponents of this economic theory promote tax cuts, which, in turn, will produce more spending and, therefore, more overall tax dollars in the long-run and greater economic growth. (More recently, we have seen the failure of a supply-side experiment in our neighboring Kansas, where the Republican-led legislature finally overturned the governor’s veto and raised taxes after public education and other services were decimated by lower revenues caused by earlier tax cuts.) Boushey observes that there are very different spending habits within different income levels. Lower income households spend a much higher percentage of their income on meeting basic, day-to-day living demands. Former chair of the Council of Economic Advisors Alan Krueger’s research has shown that about $1.1 trillion in income shifted to the wealthy between 1979 and 2007. Because of household spending behaviors, had that $1.1 trillion gone to the bottom 99 percent instead of the top 1% of Americans … aggregate consumption would have been 5 percent higher each year. That adds up to about $480 billion in lost economic gains annually…. These calculations make clear that the economy would be in better shape and aggregate demand would be stronger if the size of the middle-class had not dwindled as a result of rising inequality. (p. 148)
We have seen similar patterns during the pandemic, as savings have risen among middle and upper income households since March 2020, while many lower income families remain in a crisis situation.
The evidence in Unbound is clear: Rising income inequality has harmed the nation’s overall economy and population. How to “fix” the problem is not simple, however. Boushey identifies early childhood education as one of the best public investments. A Duke University study showed that individuals who, at age seven, had reading scores in the lowest quartile made 26% less, on average, than those in the highest quartile by adulthood. The author advocates for universal pre-K, citing research findings that “it would take just eight years for the total annual benefits of such a program to exceed the costs, and within thirty-five years, the surplus would total $81.6 billion—more than double the costs” (p. 56). Noted author and sociologist Robert Putnam visited the Springfield community several years ago to promote his book Our Kids: The American Dream in Crisis, which addresses the question “What has happened to the Land of Opportunity?” and promotes universal pre-K as a way to once again provide low-income families a chance to pursue economic opportunity.
One of the other key areas of focus in Unbound is simply how we count economic growth. GDP has become our bellwether measurement for determining “how the economy is doing”; yet, such a broad aggregate misses the actual health of the majority of the population. Boushey strongly emphasizes disaggregating data to focus on how most households are doing. As she argues, we have been measuring the wrong thing. “Measure what matters,” she writes. Robert Kennedy spoke eloquently of this need when he talked about what was called “gross national product” back in the 1960s. His words are worth quoting at length:
Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle [in 1966, Charles Whitman killed 16 people and wounded 32 in Austin, Texas] and Speck’s knife [in 1966, Richard Speck raped and killed 8 student nurses in Chicago], and the television programs that glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.
And it tells us everything about America except why we are proud that we are Americans.
Boushey suggests adopting a more equitable fiscal and regulatory policy that “support[s] sustainable and productive investment by encouraging savings toward public infrastructure and climate change.” There has been a great deal of bi-partisan support for such policy, yet the U.S. legislature has been unable to develop, much less pass, legislation that addresses in any meaningful way our deteriorating national infrastructure. As the new administration comes in, this is certainly an important area in which to find common ground and move forward.
In Boushey’s concluding chapter, she reaches back to the founding father of the dismal science of economics:
More than two hundred years ago, Adam Smith transformed how people thought about the economy, giving us the idea of dynamics pushing the market as though with an invisible hand toward mutually beneficial outcomes. If the desires for wealth that inspire the butcher, brewer, and baker guide free, competitive markets toward outcomes that are generally socially beneficial, then they act as forces for good. During the latter half of the twentieth century, however, Smith’s ideas were stripped of nuance and turned into a widespread faith among policymakers that, if they left markets to their internal logic, the nation would see broadly-shared improvements in well-being. The evidence is in: That barebones framework doesn’t work. (p. 191)
To this, I would add a footnote. Before Smith wrote The Wealth of Nations, he penned The Theory of Moral Sentiments. One of his foundational sentiments was that what benefitted a neighbor would benefit the individual. Smith saw sympathy as a “natural state” in humans. Thus, one might deduce that, when taken together, people matter more than markets, with the latter serving what is best for people, not the other way around. Many seem to have lost sight of that in the past several decades. The dismal science, then, does not have to be so dismal after all.
Author
Brian Fogle is President of the Community Foundation of the Ozarks. Prior to joining CFO, he spent 30 years in banking in Springfield.
Brian’s hometown is Aurora, MO, where he is a graduate of Aurora High School. He has his B.B.A. and M.B.A. in banking and finance from the University of Mississippi.
Brian has been active in numerous civic and non-profit groups. He currently chairs the Good Community Committee and co-chairs the Healthy Living Alliance, and is on the board of the Every Child Promise, the Downtown Council of Champions, The Missouri Scholarship and Loan Foundation, and the Missouri College Access Network. He previously served on the Missouri Coordinating Board for Higher Education, and the Federal Reserve Board Community Advisory Council. He was awarded the O Franklin Kenworthy Leadership Award in 1990, the National Community Leadership Award in 1993, and the Springfieldian Award in 2010, and received and honorary doctorate of humane letters from Drury University in December, 2011.
His motto in life is “Often wrong, seldom in doubt.”