How to think about rebuilding the middle class
The demise of our middle class might be the most compelling problem in U.S. economics. It lives at the heart of our debates about income inequality, U.S. competitiveness, tax policy, Social Security and so much more. Each of these debates have their distinct orbits, but drawing them together is the question of how we give average Americans a chance to elevate their standard of living, work for decent pay and retire in dignity.
You don't need more words on the 30-year stagnation of median wages (CliffNotes version: They're really, truly stagnating). What might be more useful is a frame for thinking about how Washington can thaw the middle-class freeze. As I see it, there are four categories of intervention.
The first category is Weak Intervention. This is the classic laissez-faire approach that says stable taxes and smart, lax regulations are the best way to let private-sector wages grow themselves. The second category is Income Intervention, using a progressive tax code to take wealth from the top and send it below in the form of tax credits or services. The third category is Education Intervention, where government actively supports schools, especially at the post-secondary level, by investing in colleges and helping students attend them. The fourth category is Industrial Intervention, where government backs certain industries implicitly (e.g. with a carbon tax) or explicitly (e.g. with solar energy subsidies).
The question facing Washington isn't whether to intervene in the economy. We've already answered in the affirmative, with tax credits for the poor, student loans and university research grants, and fossil fuel subsidies. The question is how to intervene better to promote middle-class wages without sacrificing the overall dynamism of the economy. Democrats don't want to pull back regulation and tax rates. Republicans don't want to expand our industrial policy into green energy.
With income and industrial intervention facing gridlock, it's no wonder Washington is paying serious attention to bucket No. 3: education reform. In particular the president has called out the promise of community colleges. Yes, they suffer from vertiginous drop-out rates. But yes, they can really make a difference. According to the Bureau of Labor Statistics, jobs that require two-year associate degrees are projected to rise by 19 percent in the next 10 years, faster than jobs at the doctoral, master's or any other level. Even better, an associate degree confers up to a 66 percent bonus over high school graduates' wages.
Conservatives might balk at additional investment in low-income schools with unproven track records, but the administration could back its investment in community colleges by adopting Bridget Terry Long's idea (pdf) to have each accredited college produce the equivalent of a fact sheet. This is a deceptively simple idea with big implications. The fact sheet available to each applicant would include stats like the school's loan default rate, average debt after graduation, employment rate after six months, and an employer survey on satisfaction with graduates by industry.
Putting key financial and employment information in front of students would give focus to their education, showing the light at the end of the tunnel and pointing to the deepest potholes. With a better understanding of the risks and benefits of each college, students might be more likely to choose a program that suits their skills and less likely to drop out.
Barring some unforeseen miracle, the middle class will continue to struggle without new industries to support their skills or new skills attained by more education and training. The temperature of Washington is not suitable to growing bold new industrial policy at the moment. The main theater in the war to save the middle class is education.
Derek Thompson is an associate editor at the Atlantic, where he writes about economics, business and technology.
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