New Geography

Author: Roger Selbert

  • Why We Should Nourish Strong Families

    Every social, economic, and public policy issue can be seen, at its base, as a family issue. The data and evidence are overwhelming, and have been for decades: family structure is the principal variable in the entire list of economic and social indicators. Voluminous academic research confirms that strong family environments correlate highly with positive educational, economic and social outcomes, and inversely with negative outcomes: incidence of crime and imprisonment; inability to obtain and retain employment; the incidence and persistence of poverty; out-of-wedlock births; entitlement dependence; substance abuse and dependence; domestic violence; and others. Even income and wealth inequality — inequality of life’s outcomes — correlates closely with family structure.

    Strong family structure is the single most powerful explanatory correlate in social science; stronger, even, than race. Two-parent black American families, for example, outscore single-parent white families by all measures of well-being. That’s why it is distressing that less than half of US kids live in a traditional family.

    Where does inequality start? – Much has been made of income inequality in the US; it might even be one of the biggest issues in next year’s presidential election. But the biggest reason for income inequality is single parenthood. Research by Harvard economist Raj Chetty and his colleagues concludes that the single strongest correlate of upward economic mobility across geographic regions of America is the fraction of children that do not live in single-parent families.

    Earlier this year, Our Kids: The American Dream in Crisis by Robert Putnam, attracted much attention. Putnam argues that access to the core institutions that foster the development of children – strong families, strong schools, strong communities – is increasingly separate and unequal. How did this happen? Putnam points to the usual suspects (the first being loss of manufacturing jobs), but his descriptions of life paths actually tell the American story of the past 50 years: great rewards go to those with human capital (skills, education, and determination), but not to those without. As it happens, those traits correlate closely with strong family structure. Hence, as family cohesion deteriorates, outcomes diminish for kids in those households.

    When looking at social, cultural, and economic phenomena it is difficult to separate cause from effect. The retreat from marriage and the decline in men’s labor force participation rates have occurred simultaneously. But numerous studies have found that employment and participation rates have remained consistently higher for married fathers than for married men with no children and unmarried men with no children. Sadly, these effects persist across generations.

    Family Fragmentation – Family fragmentation is the biggest domestic problem facing this country. So writes Mitch Pearlstein, head of the Center of the American Experiment and author of Broken Bonds: What Family Fragmentation Means for America’s Future.

    According to Pearlstein, about 40 percent of babies born in America these days are born outside of marriage. That’s true of about 30 percent of non-Hispanic whites, more than 50 percent of Hispanics, and more than 70 percent of blacks. Why does it matter? Because data show that children raised by their two biological (or adoptive) parents do substantially better in every respect in life than those who are not. They do better in school and in higher education; they do better at jobs and economically; and they develop more stable and lasting relationships personally. In other words, they are more likely to earn success, personal satisfaction and happiness.

    According to Brookings Institution scholar Isabel Sawhill, family fragmentation is propelling a bifurcated society. Among the wealthiest 20 percent of whites, divorce rates and single parenthood have declined to 1950s levels. But among the poorest 30 percent of whites – and among much larger percentages of Hispanics and blacks – divorce and single parenthood have become a way of life.

    What to do? – Strong, healthy families are conducive to a rich, safe, healthy, productive society, one with wide opportunities, social and geographic mobility, and cultural, moral and civic strength. Families lead to and are supported by an independent, self-reliant population. Do we not all agree these are worthwhile goals? And does that not suggest we should be promoting strong, healthy families?

    The promotion of family is a cultural cause. What can we do? For one, those of us who see empirical evidence of the importance of family can disseminate the facts. For another, those of us who, through personal experience, are aware of the social and economic benefits of strong families, could preach what we practice, as suggested by Charles Murray in his book, Coming Apart.

    Does this view devalue or stigmatize non-traditional families — single, same-sex, unrelated households, for example? No, the modern conception of family now includes those formations. And to those who say “check your privilege,” I say, share and spread the privilege.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Flickr photo by Sarah R: Moroccan-inspired vegetable soup

  • Apocalypse Soon? Uneasiness with The Economy

    Seven in 10 Americans say the country is on the wrong track. Americans are unhappy, worried and pessimistic, and their spending is down according to a University of Michigan report. But the same report shows that consumer sentiment is up. Consumer confidence is up, according to the Conference Board, and our own Consumer Demand Index indicates that spending plans are up.

    What accounts for this dichotomy? Perhaps it could be the normalcy bias, a desire for “normalcy” so strong as to feed a willingness to overlook contrary evidence. Or perhaps our uneasiness is an example of the “wisdom of crowds”, James Surowiecki’s theory that in aggregate, opinions of a wide cross-section of people are more accurate than those of experts.

    Frankly, I’m uneasy, unhappy, worried, and pessimistic.

    The protracted and uneven recovery from the Great Recession has led most Americans to conclude that the US economy has undergone a permanent change for the worse, according to a new national study by scholars at Rutgers University. Seven in 10 Americans now say the recession’s impact is permanent, up from half in 2009 when the recession officially ended.

    Despite sustained job growth and lower levels of unemployment, most Americans do not think the economy has improved in the last year or that it will in the next. Just one in six Americans believe that job opportunities for the next generation will be better than theirs have been; five years ago, four in 10 held that view.

    Much of the pessimism is rooted in direct experience. Fully one-quarter of the public says there has been a major decline in their quality of life owing to the recession, and 42% say they have lower salary and less savings than when the recession began, while just 30% say they have more.

    The public also paints an extremely negative picture of American workers as unhappy, underpaid, highly stressed, and insecure about their jobs. Americans are also pessimistic about the future, and sharply critical of Washington policymakers. Only a quarter think economic conditions in the United States will get better in the next year, and just 40% believe their family’s finances will get better over the next year.

    The Economy gets a downgrade: The updated budget and economic outlook recently released by the nonpartisan Congressional Budget Office (CBO) contained good news about
    corporations, but bad news about the rest of the economy. According to Harry Stein of the Center for American Progress, the CBO now estimates that the economy will grow even more slowly than it expected in its previous economic outlook. It now expects that wages and salaries will comprise a smaller portion of that reduced economic pie.

    The report suggests that troubling long-term trends in our economy are getting worse. Those trends include the stagnation of middle-class wages, which has gone on for over a decade. In addition, during the last 50 years overall employee compensation – including health and retirement benefits – has fallen to its lowest share of national income in more than 50 years, while corporate profits have climbed to their highest share.

    Yet corporations are paying a much smaller portion of the total federal tax burden than they did in the past: about 10% today, vs. 30% in 1953.

    While this is not an immediate emergency, since the annual budget deficit is very low right now, deficits will become unsustainable in the future, according to the CBO.

    But there is a crisis for middle-class and low-income families right now: stagnant wages are not keeping up with rising expenses. American productivity has increased, but those gains are not making it to low- and-middle wage workers.

    There has not been a real deleveraging: For several years, media headlines have been filled with references to a “deleveraging,” or a reduction in the level of US debt. But while the US financial system and banks are better capitalized, there has been no deleveraging in the broader economy. Consider these three points, courtesy of BlackRock investment strategist Russ Koesterich:

    • US household debt remains high: Thanks to a significant write-off of mortgage debt, the debt burden of US consumers has been modestly reduced. By most measures, however, household debt levels are still too high. The past several years have witnessed a huge surge in student and auto loans. Overall, US household debt still stands at 103% of disposable income.

    • Fueled by cheap credit, corporations have been adding new debt. Since the third quarter of 2010, corporate debt has increased every quarter. Over the past six quarters, corporate debt has been growing at an average annualized rate of around 9.5%, well above the pre-crisis average of 7.5%.

    • Federal government debt has exploded. Outside of debt held by the Social Security Trust Fund, federal debt has risen by roughly $7.3 trillion over the past six years, an increase of 140%.

    The net result is that non-financial debt has actually risen significantly since the financial crisis. Six years ago, notes Koesterich, non-financial debt was around 227% of GDP. Today, it’s at a record 250%.

    Does rising non-financial debt matter for the economy and for investors? Long-term, the answer is yes: implications include slower growth, a persistent headwind for consumers and vulnerability to even a modest rise in interest rates (this is particularly true for the federal government).

    This is not a real economic recovery: Wages have been stagnant since the start of the supposed recovery. Real household income has fallen by 7%.

    • The S&P 500 has increased 196% in five years; stock market valuations have been higher only three times in history: 1929, 1999, and 2007. But average Americans are not participating in the markets’ gains. They have instead parked record levels of cash ($10.8 trillion) in no-interest bank and money market accounts.

    • The economy has added a few million jobs, but 11 million people have permanently left the labor market.

    • The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis; today it stands at $4.4 trillion. The correlation between that increase and the stock bubble is self-evident. So is the true purpose of quantitative easing: to save Wall Street, not Main Street.

    • The housing market is worse for real people than it was in 2009. The national home price increase — 25% just since 2012 — has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by late-arriving flippers, who now account for 34% of all home sales. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now.

    Yet as analyst James Quinn points out, mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over.. Home sales will be stagnant for the next decade, he predicts.

    This will not end well: Crashes are coming, concludes Quinn. Quantitative easing will cease come October, unless the Fed and Wall Street can manufacture a new crisis to cure by printing more money. By every valuation measure, he writes, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%.

    Ten-year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt has been to load it down with trillions more in debt. The ship is taking on water rapidly.

    We had a choice, says Quinn: “We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punishment of those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived… Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

    Discontent among the masses grows by the day. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park.”

    I fear he may be right; so like I said, I’m uneasy.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. “Growth Strategies” is his newsletter on economic, social and demographic trends. He is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Flickr photo by Brendan Murphy, The last sunset on earth, taken “somewhere close to the ends of the earth – White Cliffs in NSW”.

  • The Part-Time, Freelance, Collaborative Economy

    Are we becoming a part-time economy? Maybe. A collaborative economy? Possibly. A freelance economy? Definitely. Here’s the evidence:

    The Part-Time Economy- Involuntary part-time work is at a historic high, and the workforce participation rate is at a near-historic low. The number of unemployed people is higher, and the number of jobs in the economy is lower, than five years ago. During this weak recovery, more people have left the workforce than have started a new job, and a high percentage of the jobs that are being created are low-wage and part-time.

    This is a catastrophic situation, both in personal and in national terms. On the personal level, people need work to pay the bills, save some money for their non-working years (if they ever arrive) and, I would argue, to stay connected to society by being and feeling useful. It has long been noted that Americans are prone to defining themselves in terms of their work, through which they find a sense of identity, purpose and self-worth.

    On the national level, the country needs more citizens working more hours to pay taxes and to start to alleviate our unsustainable debt and unfunded liabilities.

    For this miserable state of affairs, some blame the Affordable Care Act. Others say it is a temporary phenomenon, due to the lousy economy and low economic growth. Still others blame technology and/or globalization for displacing jobs, or the rising share of profits that go to capital instead of to labor. And finally, some say the shift to part-time is a myth.

    According to a report from the Federal Reserve Bank of San Francisco, recessions always drive up part-time work, but what is different this time is that the part-time employment rate has remained higher for many more months than in past recessions. Also, states the report, the US labor market has recovered only about three-fourths of the jobs lost during the recession and its aftermath. In other words, general labor market slack is the key factor keeping part-time employment high.

    My conclusion? Many more people would be working, and working more hours, if not for the four horsemen of recession/depression: high taxes, overregulation, a weak currency and political (policy) uncertainty. When things crashed some five years ago, I wrote that the effects would be with us for years: slow growth at best, high unemployment and underemployment, underinvestment by businesses, and an overhang of debt. Sorry to say I was right, and that what I most feared has come to pass: a “recovery” that leaves tens of millions behind.

    How are millions coping?

    The Collaborative Economy- A modern version of the “pooled resources” strategy practiced through the ages by affinity groups — families, tribes, etc. — has been updated for the 21st century through the use of technology. Those outside of traditional economies once banded together to survive, and then thrived, becoming part of new mainstreams. This is happening again today. We are seeing peer-to-peer sharing not only of content, but of goods and services, transportation, space and money.

    Platforms that are hallmarks of this new economy include well known sites like Etsy, eBay, Craigslist, Kiva, and Kickstarter, as well as Rent the Runway, Lyft, Uber, and Airbnb. Apps and the internet are the new middle men of collaboration, connecting individuals. This economy also empowers entrepreneurs and hobbyists.

    Sharing is the New Buying, a report by CrowdCompanies.com and VisionCritical.com, breaks individuals down into three categories, based on their level of participation in the collaborative economy. A shrinking majority of us (61% of Americans) are still in a category the report calls “non-sharers,” not yet having dipped into this realm. A smaller portion (23%) are “re-sharers,” using some of the more popular and more established services like eBay and Craigslist. But then there is a smaller, rapidly emerging group (16%) known as “neo-sharers.” These are the people who are early adopters of sites like Etsy, Lyft, and Kickstarter, engaging in more niche forms of collaboration.

    The poor employment environment is one of the engines driving this trend, but once people become engaged in it, they may never go back to the traditional ways of doing things.

    The Freelance Economy- One in three Americans, roughly 42 million, are estimated to be freelancers. By 2020, freelancers are expected to make up 50% of the full time workforce. Independent work is becoming more common across all generations.

    As Jeff Wald writes in Forbes, the freelance economy is exploding at exactly the same moment that businesses are undergoing a major shift. Talent is moving from a fixed cost (and one that’s historically been one of the largest of a business) to a variable cost, with companies staffing up and down as needed.

    The booming online staffing industry is also accelerating the growth of the freelance economy. This $1 billion industry grew 60% last year.

    The online work marketplace oDesk recently announced that it hit $1 billion in work brokered between businesses — many of them small — and solopreneurs, freelancers who moonlight, and in many cases earn their entire living, online.

    While it’s unlikely the majority of businesses will ever become completely freelance or remote — core staff need to work in proximity at any company of a certain size; local service-based businesses need people on site, though those can be freelancers — it’s entirely plausible that more than half of the American workforce will one day log in or show up every day as independent contractors.

    A surprisingly large percentage of working freelancers have day jobs to supplement their incomes. And for many, it’s soon going to be the only option. By 2020, more than 40% of the US workforce will be so-called contingent workers, according to a study conducted by software company Intuit.

    ***

    Following the recent economic downturn, the employment rate has recovered at a frustratingly slow pace, except in one area: temporary, contingent, and independent workers. Between 2009 and 2012, according the Bureau of Labor Statistics, the number of temporary employees rose by 29%. A survey of the 200 largest companies found that temporary workers represented, on average, 22% of their workforce. Workers from all different industries, not just tech, are discovering that they’re able to be productive outside of the corporate office and without a long-term employer.

    Even with the economy and hiring improving, freelancing is likely to become a much bigger part of the employment landscape, regardless of what workers prefer. Employers like having the flexibility to expand and contract their workforce, and the supply of available workers currently exceeds demand in many fields. Elance, one of many online freelance hubs that matches freelancers with clients, recently announced that hiring by businesses through its site increased by 60% last year.

    Keep all this in mind every month when employment numbers are released by the Bureau of Labor Statistics; they’re missing the big story — the part-time, collaborative and freelance economy. This is what explains how the workforce can shrink while the unemployment rate also declines. Sure, a lot of people are retiring or collecting some sort of disability, but the big trend is that there is tremendous growth in freelance and independent contracting work, part-time work, and collaborative types of work that fly under the radar.

    Of the many repeating patterns I have discerned from decades of social and economic trend analysis, these are two of the most powerful: 1) what is outside the mainstream, if necessary or desirable, becomes mainstream, and 2) what is past is prologue.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Flickr photo by Antony Mayfield, Working in Intelligensia: Settled down to work in a coffee shop in Venice, California.

  • Our Dysfunctional Housing Market

    This is the story of how elites prospered while killing the singular trend that built America, and all that you proles got in return was a dysfunctional housing market. In a reversal of more than 100 years of American history, the unique force that built the United States and the wealth of its inhabitants – geographic convergence – has been stopped. Based on labor mobility and the income convergence it engendered, geographic convergence was our great equalizer, our economy’s ace in the hole: even in the worst of times people could always move from where they were to somewhere else to improve their prospects. Well, they can’t anymore, and the reason is housing.

    Who killed geographic and income convergence? Well, we wealthy, older, property-rich elites in desirable zip codes did. Call us the new landed gentry if you like. I would like to say we’re really, really, sorry but I don’t see us doing anything to correct it. It wasn’t on purpose; it was an inadvertent, unintended consequence of well-intentioned laws and regulations concerning land use, zoning, building codes, permits, property taxes and the like. We didn’t undertake those restrictions on building and development specifically to exclude you people (wait – did I really just say “you people?”). Why heck, we’re concerned as all get-out about rising inequality and income disparity, just not in our own neighborhoods, okay? And besides, residential segregation is voluntary, isn’t it? Didn’t you read Bill Bishop’s “The Big Sort”? We all naturally prefer to cluster with the like-minded and socioeconomically similar, don’t we?

    We used to have a housing market that consisted of buyers, sellers, and the supply of homes for sale. Today, the housing market is artificial and even fraudulent — it’s anything but a free market in which inventory is allowed to clear. Millions have defaulted, and millions more are in the pipeline to do so. Because of this massive shadow inventory of underwater and foreclosed homes that is only slowly being leaked out to market, there are millions of people who can’t sell the houses where they live, millions who can’t buy houses where they want to live, and millions who may never get a foot on the housing ladder at all.

    The government response — bless ’em, they do represent us — is to do everything possible to keep housing prices inflated. Interest rates are kept absurdly low (if you can qualify, and we do!), and the federal government now guarantees 90% of all mortgage loans (defaults and delinquencies are staggering, but so what?). Inventory is being constrained by banks which have not only been bailed out, but given the ability to rewrite accounting rules, for example, suspending mark-to-market and taking years to move on non-performing loans. Some of your neighbors haven’t made a mortgage payment in years but have yet to receive a notice of default. The result? In some markets, housing mania has returned. Flippers and non-resident investors are flooding in and crowding out people who actually want to buy homes in which to live. We’re inflating the bubble again. Thank you so much — don’t mind the feudalism!

    All of this allows us to continue to buy expensive homes with low down payments and monthly payments (relative to income, of course, and ours is larger than yours), max out the tax deduction on the back-end, and escape capital gains taxes on the first $500,000 of profit on the sale of a home. Sweet. I guess they’re trying to goose consumption, but with your flat household incomes, it doesn’t seem to be working.

    How We Got Here – In a recent working paper two Harvard economists, Peter Ganong and Daniel Shoag, explain how geographic and income convergence started to slow in the 1960s, when rich people in rich places started constraining land use through regulation. This limited the housing supply in those places, which forced prices up, and started to squeeze out those with lower incomes.

    Housing prices have always been more expensive in high-income places, but the difference now is unbridgeable. The result is that people can’t get on the upward mobility ladder, thus increasing the inequality that these same elites bemoan. But they don’t see or understand the connection between this income divergence and their own regulations and restrictions.

    What to Do? – I recently had the opportunity to contribute to a symposium hosted by CORE (National Community Renaissance), one of the largest nonprofit affordable housing development corporations in the United States. As a catalyst we used an article by Joel Kotkin and Steve PonTell, CORE’s President and CEO, “Is the Dream Dead? Housing’s Next Challenge.” The authors note that homeownership is at a 15-year low, despite the fact that owning a home is now cheaper than renting in most of the top 100 metro areas, but that lower housing prices have not done much to improve the conditions for lower-income people. Indeed, as people who would normally own housing become renters, price pressure has actually worsened for renters.

    Housing has traditionally been the main way Americans accumulated assets, created wealth, raised families, became part of communities, and contributed to social stability. But housing is only one factor squeezing lower and middle income Americans. The real culprit has been stagnant and even declining incomes. The authors conclude, as I read it, that if you want to champion those less well-off, the way to do it is with solutions that are less government-centric: not to give them housing and income, but to take away the barriers to housing, allow the construction of new, market-friendly housing, and boost wealth creation through economic development.

    What If Housing Declines For A Generation? – A strong case can be made that the fundamental supports of the housing market – demographics, employment, creditworthiness and income – will not recover for a generation, and that housing has lost its status as the foundation of middle class wealth, not for a generation, but for the long term.

    Charles Hugh Smith has written that rising rates of home-ownership require five conditions: favorable demographics, rising household formation rates, a large cohort of creditworthy potential buyers, an economy that generates rising incomes to support home-ownership, and an unshakable belief that owning a house is a favorable and secure investment that will rise in value in the decades ahead.

    If the first four conditions have eroded, then the belief in the permanence of a rising housing market will also erode. And they all have in fact eroded:

    • Today’s demographics are not favorable to housing on a number of fronts.
    • Household formation is in a long-term decline.
    • Labor’s share of the national income has plummeted to historic lows, and
      income has declined, especially for young workers.

    • Part-time jobs and temp jobs do not generate enough stable income to support a mortgage. It’s easy to qualify people for a mortgage. The hard part is making sure that they will have enough income and faith to service the mortgage for the next 30 years.

    Arnold King of George Mason University has argued that home ownership subsidies have imposed costs on the economy and society that are large and clear, while the benefits of such subsidies are, at best, small and vague. His conclusion: Who needs home ownership?

    I’m more worried about Smith’s conclusion, which is an idea that few are willing to entertain: the possibility that housing is no longer the foundation of middle class wealth, and that its decline is structural, not cyclical. What if he’s right?

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Flickr photo by Sean Dreilinger: For Sale signs posted in Lake Oswego, Oregon

  • America’s Two Economies

    Surely you’ve seen it in your own neck of the woods: great contrasts between prosperity and wealth on the one hand, and hardship and despair on the other. I have certainly seen it in every place I have been over the last four years. FDR described the Great Depression as “one-third of a nation ill-housed, ill-clad, ill-nourished.” Yet do we not today have one-third of a nation either unemployed, underemployed, underwater on their one greatest asset (their homes), in crushing debt (which I define as unserviceable from current income), insolvent/bankrupt, on food stamps, unemployment or disability payments, or otherwise dependent on government? The diminishing of the middle class is daunting, but most disturbing is the diminishing of its prospects.

    Perhaps you attribute this state of affairs to the “rich get richer, poor get poorer” meme. But there’s something else, something more going on. I have written about this before (unraveling, stagnation, middle America, middle class is the future), but here bring a fuller picture.

    In the years since the Great Recession started (and ended?) in 2008-2009, the US has been characterized by two economies. One of these American economies is thriving, as are the economic actors part of it. The other economy is miserable, as are its inhabitants. The divergence between these two economies is growing more pronounced. Why is this so, how did it happen, and what does it portend?

    I have been debunking the “rich get richer, poor get poorer” theme for 30 years, maintaining that the relative income gap did not matter as long as absolute income growth was widespread, and economic growth was providing opportunities to all (which was the case). But now those caveats have come into play: middle-income, middle-class earnings, wealth and opportunities are under immense pressure. This is not because the rich get richer, or that redistribution is the answer (I find the debate over austerity vs. growth pretty stupid, when growth too often just means growth of government). It is because of fundamental, structural economic trends which may be with us for a long time to come.

    Divergent Sectors, Divergent Fortunes
    Perhaps you have heard of the manufacturing “renaissance” in America and the exporting “boom.” Both are true. American exports are booming, measuring in at about $180 billion each month (up from $140 per month two years ago). Exports account for about 14% of GDP, and are growing about 16% a year. American manufacturing employment has been hurt by globalization, but manufacturing output continues to grow and exporters are thriving.

    American manufacturing and export prowess are likely to continue into the foreseeable future, as large American companies use innovation and technology to become more productive, and as the growing global middle class demands more American goods (including energy in the form of oil and natural gas).

    The bad news is that exports and manufacturing do not translate into more jobs or even higher wages. Our new job growth has been in health care, education, services and government, areas that do not produce great income and wealth. This holds down the potential income gains of all wage-earning Americans.

    But the income and potential of those in management, finance, high technology and the professions are not adversely affected. The benefits of productivity, manufacturing, exports and economic dynamism generally, therefore, accrue to the already well-situated capitalists, managers and properly skilled. Sure, the internet will continue to make it easier for many small businesses to survive (and some even to thrive), but they cannot be great founts of sustainable jobs.

    Two-tiered economies are well-known and expected in developing countries – an export/manufacturing or raw material sector and a weak domestic service sector – but we’re not used to seeing it in an advanced, technologically sophisticated country like the United States. It actually could mean that the rich will get richer, but the economy will be missing its traditional ladder for those in the middle and below to climb.

    Where will enough employment growth come from to maintain the middle class? Many analysts tell us it will come from the innovation sector, or the innovation economy. But again, the benefits of innovation seem now to accrue to the companies and individuals   already in a position to exploit it, increasing productivity and profitability without a concomitant increase in employees.

    Dystopian Economics
    This is getting perverse, isn’t it? We have high unemployment and underemployment, huge debts and deficits, but companies are profitable and share prices continue to rise. There seems to have been a breakdown in the correlation between employment and GDP, between the housing market and overall economic strength, and between GDP growth and stock market valuations.

    Statistics say we are in a low-inflation environment, but living expenses seem to be rising for food, energy, healthcare and education (the things on which the middle class must spend). Those with jobs and income in sectors that are doing well don’t seem to be as affected. That would certainly help explain the contrasts of wealth and hardship that one sees around the country.

    In other words, what we seem to have created is a winners-take-all economy. Large companies with global exposure, highly skilled workers, and high net worth individuals are the main beneficiaries of current economic policy. Job creation, most small businesses, and low- and medium-end housing are not.

    What if a rising tide no longer lifts all boats?
    We now have the lowest percentage of Americans working or looking for work in 30 years. That really is devastating because the only way out of our fiscal and entitlement nightmare is to have more people working more hours and more years. Is the opposite our future?

    The trends that are creating and sustaining two economies in the US have been building for years and seem to me to be so strong as perhaps impervious to amelioration. The “two economies model” meets my test of sustainability: being supported and reinforced by other fundamental social, demographic, political and technological trends (or at least not being incompatible with them). It is hard to foresee how the “two economies model” can be reversed or even tempered, though it is a path that will leave tens of millions of Americans behind even as the “working” economy improves.

    I have been analyzing, writing and speaking on trends for 30 years. My audiences are often businesses or organizations looking for a picture of the future environment. I usually get a laugh from the observation that the future will be bright for some, dismal for others, and therefore recommend being in the first group. I don’t think I’ll make that joke anymore; somehow it’s no longer funny.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Finding a job photo by Bigstockphoto.com.

  • Does a Big Country Need to do Big Things? Yes. Do We Need a Big Government to do them? No.

    TV network MSNBC’s left-leaning commentator Rachel Maddow has opened herself up to ridicule by the conservative blogsophere over her advert featuring the Hoover Dam. The thrust of the spot is that “we don’t do big things anymore” but that we should. But critics say the dam couldn’t be built today due to environmental opposition to exactly these kinds of projects. Indeed many in the Administration and their green allies are more likely to crusade for the destruction of current dams than for the building of new ones.

    Both sides have their points.

    Building the Hoover Dam was not uncontroversial, to say the least. But it has proven to be beneficial to millions of Americans (flood control, hydroelectric power, recreation, and water for homes, farms and factories). Truly, it has allowed the desert to bloom.

    Public goods like dams are not excludable (their use is not limited to paying customers), so only government can provide them, right? Well, as economist Jodi Beggs points out, there is certainly a case to be made for private ownership of seemingly public goods. The questions to be asked are:

    • Do the benefits to society of these projects outweigh the costs?
    • Could private enterprise provide this good or service if the government did not undertake the project itself?
    • Is there a compelling reason to ensure that everyone have access to this good or service?
    • If so, is there a way to ensure access without wholly providing the good or service?

    In support of the case for private ownership Beggs cites Dingmans Bridge, which provides a crossing of the Delaware River between Pennsylvania and New Jersey, one of the last private toll bridges in America. Ironic she should mention it, because for the past 40 years Dingmans Bridge was supposed to be deep under the water behind the Tocks Island Dam.

    The Big Dam that Never Got Built

    Although Tocks Island Dam was never built, 72,000 acres of land were acquired by the U.S. government, often by condemnation, including farms, homes, and businesses. Whole towns disappeared when people had to move away, including many historic roads and structures that featured prominently in the Revolutionary War. This land now constitutes the Delaware Water Gap Recreation Area, which I visited last August on my summer vacation. It was eerie, haunting, beautiful and amazingly empty on a warm summer’s day within a 90-minute drive from Manhattan (okay, maybe two hours).

    Many of the condemned homes, farms and buildings still exist, abandoned. As I drove through the area I could not help but think something has gone terribly wrong here, but what? Is it a story of government incompetence or good intentions gone bad? Or perhaps a story of NIMBYism run amok to throttle progress, development and future opportunity for future generations?

    The Tocks Island Dam Project had been under consideration even before the 1955 flood, which caused several deaths and immeasurable damage to the Delaware River basin. In 1965 a proposal was made to Congress for the construction of the dam. The Tocks Island National Recreation Area was to be established around the lake, which would offer recreation activities such as hunting, hiking, fishing, and boating. In addition to flood control and recreation, the dam would be used to generate hydroelectric power and to supply water to the cities of New York and Philadelphia.

    There was much local opposition to the project. My sister and brother-in-law have been locals for over 40 years and I can tell you, it’s still a touchy subject. The dam was disapproved by a majority vote of the Delaware River Basin Commission in 1975. With the United States still funding the Vietnam War, financial considerations came to the fore. Also, the geology was questionable for what would have been the largest dam project east of the Mississippi River.

    In 1992, the project was reviewed again and rejected with the provision that it would be revisited ten years later. In 2002, after extensive research, the Tocks Island Dam Project was officially de-authorized. But the heartache of dislocation remains.

    What are the lessons of the Tocks Island Dam?

    Well, if we apply Beggs’ qualifications, we find that the project’s benefits did not outweigh its social, political and economic costs. It would have been nice to know this before all that land was acquired, causing those homes, farms and businesses to be condemned and abandoned by force. Would the dam have prevented the recent damaging floods in New Jersey and Pennsylvania? No, the recent floods were off the Passaic River, not the Delaware. Have New York and Philadelphia experienced major water and/or electricity shortages in the past 40 years that the dam would have ameliorated? Not apparently.

    So we are left with this: even with highest purposes, best intentions and smartest people, government tends to get things wrong. It is not just the law of unintended consequences, but the law of government efforts having the opposite effect of those intended.

    What ever happened to Reinventing Government?

    In 1992 the concerns over government debt, deficits and unfunded liabilities were national issues (sad, ironic and maddening, isn’t it?). So strong were these concerns that they drove a Presidential candidate, Ross Perot, to the largest vote ever received (nominally and percentage-wise) by a national third-party candidate since the Bull Moose Party of Teddy Roosevelt. After Bill Clinton won that election – largely because of the votes Perot took away from George Bush – the newly-elected President would famously say, “The era of big government is over.” Oh, would that it were so.

    That same year saw the publication of a book by David Osborne and Ted Gabler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. Oh, would that it were so. The most compelling concepts in that book (to me) were the privatization and contracting-out of government services – the transformation of government from the entity that provides services to the entity that makes sure needed services are provided.

    What happened? The concept of reinventing government is still alive, at least on the local and state levels; David Osborne is still fighting the good fight with the Public Strategies Group, but as he writes, “Reinventing public institutions is Herculean work.” And at the federal level we have had orgies of spending, debt and deficits.

    Of course, we still need to do big things: Keystone pipeline, anyone? How ironic the opposition to building big things comes from the political left, the greens. In contrast, big Labor generally supports infrastructure projects, but not universally and often with prohibitively expensive terms. One big advantage that FDR enjoyed – something rarely cited by progressives – was the lack of public employee unions.

    Meanwhile, a whole generation of underemployed blue collar youth is coming up, with few prospects and little of the can-do ethic that once propelled us to do big things. The President recently bemoaned this too – citing the Hoover Dam and Golden Gate Bridge. What he does not realize is that, more times than not, big government is now more of a hindrance to, than an agent of, needed and desired change.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Dingmans Bridge photo by Charlie Anzman via Flickr.

  • Are We Unraveling?

    Is the fabric of society unraveling? That’s been a fear expressed throughout our history, and sometimes it has even been true (the Civil War comes to mind ). But our divisions have always healed over time. I would go so far as to say that nothing defines America more than its ability to absorb minority views, cultures, practices and peoples (a two-way street of acculturation by which outsiders are absorbed while the mainstream expands). 

    But I sense there is something else going on right now. I confess that after spending 30 years of debunking fears of unraveling in my writings and speeches, today I am not so sanguine. What’s different? What’s changed?

    Are we “one shock away from a full-blown crisis?” I dare say we are already there. But have we not overcome many grand crises over our history? What’s different this time? I fear we are losing three of our national characteristics: resiliency, dynamism, and social/cultural cohesion.

    Declining Resiliency

    Our economy and society are both based on the ability, proven time and again, to overcome hardships and bounce back from misfortune. Resiliency turns out to be a better approach to economic and social well-being than trying to avoid all risks. But that ethic is declining. Part of the problem is we are prevented from practicing it by legislators, regulators, lawyers, environmentalists, activists of all kinds – the entire edifice of nanny state , busybody America.

    Declining Dynamism

    Historically, the nation’s dynamism – its ability and proclivity to innovate – has brought economic inclusion by creating numerous jobs. It has also brought real prosperity – engaging, challenging jobs and careers of self-realization and self-discovery. But dynamism has been in decline for a decade. So write Edmund Phelps and Leo Tilman in the Harvard Business Review.

    There are several culprits for this decline: a stifling patent system; a focus among public companies on quarterly results, rather than long-term value creation; and a financial system that for a generation has focused its talent and resources not on funding business innovation but on proprietary trading, regulatory arbitrage and arcane financial engineering.

    Declining Social Cohesion

    In a recent lecture at the American Enterprise Institute, Charles Murray gave a preview of his forthcoming book, “Coming Apart at the Seams.” His thesis: America has never been a classless society, but over the last half century the United States has developed new lower and upper classes that diverge on core behaviors and values to an unprecedented degree. The divergence of America into these separate classes is different in kind from anything America has ever known, maintains Murray, and if it continues, will end “the American way of life.”

    What has Murray so troubled are disconcerting trends in the white working class, for if things are bad in the lower middle class, things can’t be good in the country as a whole. Looking at America’s four essential Founding virtues (Industriousness, Honesty, Marriage, and Religiosity), Murray finds widening gaps between the upper-middle and working classes:

    Marriage: In 1960, 88% of the upper-middle class was married, versus 83% of the working class, a negligible 5% gap. Today, 83% of the upper-middle class is married, but among the working class, marriage has collapsed: only 48% are married. That’s a revolutionary change, as is the percentage of children born to working class single women (from 6% to nearly 50% in the last 50 years).

    Industriousness: The percentage of working class males not in the workforce went from 5% in 1968 to 12% in 2008. Among those with jobs, the percentage working less than 40 hours a week increased from 13% in 1960 to 21% in 2008.

    Religiosity: The percentage of Americans saying they have no religion increased from 4% in 1972 to 21% in 2010. A substantial majority of the upper-middle class (58%) retains some meaningful form of religious involvement, whereas a substantial majority of the working class (61%) does not.

    Honesty: The great increases in crime and incarceration over the past decades have overwhelmingly victimized working class communities, while hardly touching upper-middle class communities.

    A New Lower Class

    In addition to the decay of the Founding virtues in the working class, Murray finds a new lower class emerging: people who are becoming increasingly detached from society. He measures the magnitude of the problem by considering three sets of people that cause difficulties for a free society: men who can’t make even a minimal living, single women raising minor children, and social isolates, people with no connections to family, church or any local activities. Such people are very rare in upper-middle class populations (around 5%), but are becoming very common in the working class, having grown from 10% of that group in 1960 to fully 35% today, representing a difference in degree so large as to constitute a difference in kind from anything the nation has ever seen.

    How do these numbers translate into real life in real communities? They translate into an unraveling of daily life in small ways and large.

    A New Upper Class

    In The Bell Curve (1994), Murray made the case that the nation was experiencing a fundamental change in the nature of its elites. All of the trends identified there have proven out:

    • The increasing market value for brains
    • A college system that gets almost all talented youth into college and sorts the very smartest into a handful of elite colleges
    • The increasing degree to which the most able marry the most able, and pass on not only their financial success to their children but their abilities as well

    This has led to an increasing isolation of the upper class from the rest of the country as it develops a distinctive culture of its own.

    So, are we unraveling?

    Everyone knows the movie Caddyshack. Indeed, for millions of us guys between the ages of 30 to 75, it’s considered a classic. Caddyshack was filmed in 1979, and released in 1980. Why did it resonate, and why does it still? Maybe because we all know the feeling that was expressed in the film’s marketing tag: “Some people just don’t belong.” And we have all worked lousy, low-paying jobs in which we had to suck up to people with money. I caddied every summer of my high school years in the 1960s. It was not unusual in those days, just as it is unheard of now, for teenagers to have such jobs (I also, at one time or another, delivered papers, drove a delivery truck, distributed telephone directories, painted outdoors, worked on a farm, and  a factory assembly line, as well as  other jobs I can’t even remember.) But here’s the thing: we did not resent, envy or hate the rich people – hell, we hoped to be rich some day ourselves. Instead, we actually found some  absurd humor in the American condition. Of course we didn’t belong among the priviledged – yet – but we resolved to act differently when and if we got there!

    We rubbed shoulders with the rich and privileged all the time everywhere: in school ( the public schools), in town, at the playground for pick-up games (!), at the frozen pond, at Little League games, at places of worship, at the shops, stores and markets, at the movies, etc. It was natural (and by the way, we would walk, run, or ride our beat-up bicycles). We used to consider ourselves as different parts of one American society. We respected the authority of adults, whatever their station. There were many points I could have gone wrong in life when young, but there was always a responsible adult standing in the way, and pointing in the other direction: a parent, teacher, coach, cop, rabbi, priest, or neighbor. They weren’t afraid to get involved, unlike today, where the fear of lawsuits or of being seen as judgmental has stunted this wholly voluntary communal behavior.

    Are there countervailing factors? Sure. Perhaps the biggest is that we have overcome threats to social cohesion before. But if our current situation is truly unprecedented, then as the warning goes, past performance is no guarantee of future success. Where might these trends go? I think we may be separating into two economies, societies, and cultures  into one that is highly productive and functional and one that is less so.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Photo by BerlinMoritz

  • From the Great Moderation to the Great Stagnation

    For much of the past decade, I was a proponent of the thesis that that the American economy had entered a “great moderation,” where expansions lasted longer and recessions were fewer, shorter and milder. Productivity had seemingly reached a permanently high plateau; inflation seemed tamed. The spreading of financial risk, across institutions and around the world, seemed to have reduced the odds of a crisis.

    Events of the past 30 months have put that thesis to rest.  I gave my mea culpa in Growth Strategies #1039 (October 2009), and also explained why we would instead be experiencing slow growth, high unemployment, low productivity growth, and higher taxes for the foreseeable future. That future has come to pass, and will continue to play out for years to come.

    Where does the economy go from here? Profits are up, the markets are up. Inflation and interest rates are still tame. How to reconcile rising profits, a robust stock market, and other positive indicators with unprecedented bankruptcies, foreclosures, underwater mortgages, business failures, unemployment and underemployment? The “working” economy has decided to move ahead and do fine and just leave millions behind. The future would be bright for many, okay for some and dark for many, and recommend being in the first group. 

    What about the overhang of debt and toxic assets? We seem to have opted for a long and slow process of rationalization, rather than a short, sharp and fast one. That means years of mixed messages and mixed trends: the good, bad and ugly.

    The Shattered American Dream

    A national survey of workers who lost their jobs during the Great Recession, conducted by two professors at Rutgers University, paints a gloomy view of the economic prospects for ordinary Americans.

    More than 15 million Americans are officially classified as jobless. The professors at the John J. Heldrich Center for Workforce Development at Rutgers have been following their representative sample of workers since the summer of 2009. The report on their latest survey, just out this month, is titled: “The Shattered American Dream: Unemployed Workers Lose Ground, Hope, and Faith in Their Futures.”

    Over the 15 months that the surveys have been conducted, just one-quarter of the workers have found full-time jobs, nearly all of them for less pay and with fewer or no benefits. As the report states: “The recession has been a cataclysm that will have an enduring effect. It is hard to overstate the dire shape of the unemployed.”

    Nearly two-thirds of the unemployed workers who were surveyed have been out of work for a year or more. More than a third have been jobless for two years. With their savings exhausted, many have borrowed money from relatives or friends, sold possessions to make ends meet and decided against medical examinations or treatments they previously would have considered essential.

    Older workers who are jobless are caught in a particularly precarious state of affairs. As the report put it:

    We are witnessing the birth of a new class — the involuntarily retired. Many of those over age 50 believe they will not work again at a full-time “real” job commensurate with their education and training. More than one-quarter say they expect to retire earlier than they want, which has long-term consequences for themselves and society. Many will file for Social Security as soon as they are eligible, despite the fact that they would receive greater benefits if they were able to delay retiring for a few years.

    There is a fundamental disconnect between economic indicators pointing in a positive direction and the experience of millions of American families fighting desperately to fend off destitution. Some three out of every four Americans have been personally touched by the recession — either they’ve lost a job or a relative or close friend has. And the outlook, despite the spin being put on the latest data, is not promising.

    No one is forecasting a substantial reduction in unemployment rates next year.
    Carl Van Horn, the director of the Heldrich Center and one of the two professors (the other is Cliff Zukin) conducting the survey, said he was struck by how pessimistic some of the respondents have become — not just about their own situation but about the nation’s future. The survey found that workers in general are increasingly accepting the notion that the effects of the recession will be permanent, that they are the result of fundamental changes in the national economy.

    Fundamental Changes

    Fundamental changes in the American workforce are taking place, and they hold tremendous implications for employers and employees alike. According to an Annual Workforce Trends Study commissioned by Yoh, a human resources firm, 80% of employers expect the size of their non-employee workforce (defined as consultants, independent contractors, temporary employees, and project teams) to stay the same or increase within the next year, even as the economy regains its footing.

    This new, temporary workforce presents issues for employers who will need to manage, compensate, and motivate workers who no longer view themselves as employees committed to a single employer. At the same time, for employees, this new workforce ushers in a new era of free agency, and holds vast implications for how they will build careers in a flexible work environment, where knowledge and skill trump seniority and security.

    Employers’ protracted reliance on a non-employee workforce as the US emerges from a severe recession represents a marked change from past economic recoveries when employers would add temporary talent before transitioning to full-time employees. Historically, temporary employment has served as a bellwether for permanent hiring, but these findings suggest that something much more substantial is occurring to overall workforce composition. Employers are saying that the recent recession has fundamentally changed their employment strategies and led to a “just-in-time” hiring strategy that will make temporary employees an even greater pillar of the American economy.

    The transformation of the workforce composition will have significant implications for both employers and employees. Employers now have the flexibility to quickly adjust the size of their workforce depending on project load.

    Employees, meanwhile, will have to overcome the stigma associated with “temporary talent.” Now that it’s here to stay, “temporary” workers might find themselves engaged in projects for longer periods of time, frequently transitioning into new opportunities and gaining access to jobs that were perhaps previously filled with full-time employees.

    The Great Stagnation

    Tyler Cowen of George Mason University is author of the e-book The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. Cowen argues that in the last four decades, the growth in prosperity for the average family has slowed dramatically in the United States relative to earlier decades and time periods. Cowen argues that this is the result of a natural slowing in innovation, and does not expect a return to prosperity until new areas of research dramatically improve productivity growth.

    Part of Cowen’s core point is that up until sometime around 1974, the American economy was able to experience rapid growth by harvesting low-hanging fruit. There was cheap land to be exploited. There was the tremendous increase in education levels during the postwar world. There were technological revolutions occasioned by the spread of electricity, plastics and the car.

    But that low-hanging fruit is exhausted, Cowen continues, and since 1974, the United States has experienced slower growth, slower increases in median income, slower job creation, slower productivity gains, slower life-expectancy improvements and slower rates of technological change. Cowen argues that our society, for the moment, has hit a technological plateau.

    Is Cowen right? In my view he overlooks the growth of government over the last 40 years as an economic drag. Creative individuals and companies would be a lot more innovative if taxes were lower, regulations fewer, and the system of patents more reasonable.

    If stagnation is to be the new normal, we just can’t afford it. We are a nation, an economy, a society, based on growth. America needs to grow   We must therefore constantly replace, replenish, invent, create, innovate.

    For a long time I have been worried that the US was going the way of Europe: slow growth, high taxes, overregulation, high unemployment and underemployment, debt, deficits and little prospect of change. But perhaps we may have to worry instead is going the way of South America: an oligarchy of prosperous elites, and a great mass of the undereducated, under-skilled and underemployed, with little prospect of hope, change or opportunity.

    If you think I overstate the case, consider the disconnect between the people and governing classes. Only a minority of Americans express confidence in major institutions, according to Gallup. Only a minority of Americans believe that the federal government has the consent of the governed (Rasmussen).  In my view this disconnect may be an even bigger issue than stagnation.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Photo by Martin Deutsch

  • Middle America: Problems and Prospects

    Undoubtedly, America is a middle class nation. But are there problems in the middle? It would certainly seem so: reduced employment, income and wealth (more worryingly, reduced employment, income- and wealth-building opportunities); reduced prospects for generational advancement (kids are supposed to do better than their parents, right?); general feelings of stagnation, “on the wrong track,” pessimism, frustration and anger.

    Are these cyclical or structural changes? What are the causes, and what are the cures?

    Many analyses say the cause is the breakdown of family structure and all that engenders; others say it’s that we can’t seem to get education right. But if it’s family and/or schools, trends are not favorable. On the other hand, maybe these problems are overblown. Let’s have a look.

    The Upward Mobility Gap
    According to the Brookings Institution, more than two-thirds of children born into low-income households grow up to earn a below-average income, and only 6% ever make it into the top one-fifth of income earners. Why is there an upward mobility gap in America, land of opportunity? The usually cited culprits are globalization, the decline of public schools, and the decline of intermarriage between people of different classes.

    As a group, adults with college degrees have an unemployment rate of 5%, steady or rising incomes, relatively stable families (their divorce rate declined over the last 10 years) and few children out of wedlock. Adults without a high school education, by contrast, face an unemployment rate over 15%, declining incomes, a higher divorce rate, and have lots of kids out of wedlock. (Among black women who didn’t finish high school, 96% of childbirths are outside marriage; among white women who didn’t finish high school, 43%).

    Can anything improve this troubling picture? It is now acknowledged across the political spectrum that people who do just three things – complete high school, work at any job, and not have children out of wedlock – will have a pretty good chance of making it into the middle class. Not easy, but simple. How do we help young people understand that?

    Bad Students, Not Bad Schools
    The conventional wisdom to address these issues has been to spend more on public education. That may be the proverbial barking up the wrong tree. According to Robert Weissberg, author of Bad Students, Not Bad Schools (2010), school reform is hopeless.

    His main points:

    • Academic achievement requires intelligence and motivation. School resources, pedagogy and instructional quality are important but secondary. Unfortunately, both liberal and conservative reformers have ignored brains and work ethic and concentrate on secondary factors.
    • “Bad schools” are not created “bad.” Indifferent, anti-intellectual, often violent students make schools bad, and pouring in more resources will fix nothing unless the students themselves change.
    • Academic achievement requires motivation, and today’s educators foolishly believe in making learning fun and “relevant.” This approach is doomed. Learning inescapably involves pain, and without a struggle, personal advancement is impossible. Substituting cheap self-esteem to avoid agony is particularly harmful to the intellectually less able.
    • American educators have long obsessed over closing racial gaps in learning and every attempt, regardless of the billions spent or tactics Yet trying to close these gaps undermines learning for both whites and blacks. The futile effort will only dumb-down education so as to provide the illusion of progress.
    • Recent efforts to uplift the least able students have harmed smart kids. Programs for the intellectually gifted have been decimated under No Child Left Behind. This is the opposite of what occurred in the late 1950s and early 60s when the US responded to Sputnik by concentrating on bright students. What rescues America from self-imposed education collapse is importing smart youngsters plus scientists born overseas. This may not last forever.
    • Reformers often insist that education should be treated as a business with clear standards and strict accountability to insure progress. Total nonsense. The parallel is inappropriate – you can’t “fire” non-performing students no matter how rotten or disruptive. The business-like infatuation on test scores and accountability almost inevitably subverts quality education, promotes cheating and steers less capable students away from more practical education.
    • School choice – vouchers and charter schools – infatuates “conservative” educators. This approach has seldom succeeded. More important, it falsely assumes that if students and parents were given ample choice, they would crave academic excellence. More likely, they prefer sports and country club-like facilities, not tough academics.
    • Education spending has sky-rocketed with little to show for these billions. Reformers misunderstand what today’s fixes are about. Schooling has become the reincarnation of the 1960s Great Society, a cornucopia of social welfare jobs and contracts. It is less about boosting learning than securing the social peace by preventing urban unrest.

    When Marriage Disappears
    Among the affluent, marriage is stable and may even be getting stronger. Among the poor, marriage continues to be fragile and weak. But the most consequential marriage trend of our time concerns the broad center of our society, where marriage, that iconic middle-class institution, is foundering. Marriage is in trouble in Middle America.

    So finds Brad Wilcox, director of the National Marriage Project at the University of Virginia, in his latest report. The numbers are clear; over the last 30 years:

    • Among “Middle Americans” (the 58% of moderately educated Americans who have a high school degree), the proportion of children born outside of marriage skyrocketed from 13% to 44% while the portion of adults in an intact first marriage dropped from 73% to 45%.
    • Among financially well-educated Americans (the 30% who have a college degree or higher), the proportion of children born outside of marriage climbed only slightly from 2% to 6%, the divorce rate dropped from 15% to 11%, and intact first marriages dropped from 73% to 56%.

    In sum, due to a shift in attitudes, values and behavior, the relationships of Middle Americans increasingly resemble those of the poor, while marriages among upscale Americans are getting better in many respects. For reasons both cultural and economic, there is a growing disengagement from societal institutions among large portions of the middle class.

    The retreat from marriage in Middle America cuts deeply into the nation’s hopes and dreams, writes Wilcox. He believes that if marriage is increasingly unachievable for our moderately educated citizens, then it is likely that we will witness the emergence of a diminished society. Economic mobility will be out of reach, their children’s life chances will diminish, and large numbers of young men will live apart from the civilizing power of married life.

    Wilcox says it is not too far-fetched to imagine that the United States could be heading toward a 21st century version of a traditional Latin American model of family life, where only a small oligarchy enjoys a stable married and family life – and the economic and social fruits that flow from strong marriages. In this model, the middle and lower-middle classes would find it difficult to achieve the same goals for their families and would be bedeviled by family discord and economic insecurity.

    Millennials and Hope
    Another view is offered by Joseph Lawler, managing editor of The American Spectator, who writes in the current issue that the idea that the middle class is in a “slow-burning crisis” is badly overstated. Middle-class college graduates must be doing fine, he surmises, if, as a recent New York Times article on the subject relates, they are turning down starting salaries of $40,000!

    The economic downturn has certainly caused widespread hardship, Lawler writes, but it would be a serious mistake to attribute the country’s economic woes to a prolonged erosion of middle-class opportunity. The fact that the American economy still provides opportunity on a vast scale should be evident from what Americans themselves are saying about their prospects. In early 2009, at the depths of the recession, the Economic Mobility Project, an initiative funded by Pew Charitable Trusts, commissioned a survey of Americans’ economic sentiments. The poll showed that 58% of people aged 18-29 thought that they would have an easier time moving up the economic ladder than their parents did. Seventy-two percent of those polled thought that their economic circumstances would be much or somewhat better in 10 years. Seventy-nine percent expressed confidence in the possibility that people could improve their economic standing even during the recession, and among youth the number rose to 88%.

    They could be all wrong, but optimism in the face of uncertainty should itself be considered a strength of American society!

    This clear expression of optimism among young workers conflicts with the grim trends echoed endlessly throughout political commentary, notes Lawler. The reason the polls don’t reflect such sentiments is that those malign developments are overblown, and are to a significant degree artifacts of the way statistics on income and inequality are kept.

    For instance, economic mobility – the ease with which young workers move up the economic ladder – is as healthy as the polls would suggest. Middle- and lower-class wages have not progressed as they did a couple of generations ago, but still about 65% of children go on to out-earn their parents, including 80% of those in the lowest income quintile, according to a study by Julia Isaacs of the Brookings Institution.

    It is hard to reconcile the fact that young generations are still advancing economically with the general phenomenon of stagnating wages until one factor is taken into account: immigration. Because immigrants earn less on average than others, including them in the sample makes it appear as though mobility is not as prevalent as it really is. And of course for many of them, even in lower income, they are doing far better than their own parents back home.

    Minnesota Federal Reserve economist Terry Fitzgerald, in a contrarian 2008 paper, separated some of the frequently repeated misleading facts from the reality that the middle class has made steady gains. A key finding was that while households in the middle of the distribution have fallen behind top-earning households since the 1970s, in fact almost all households have enjoyed substantial income gains since then.

    Middle America is troubled, economically and socially, and trends are not favorable. But the middle class is our strength, our hope. So what can we do to shore up the middle?

    We know that the answer is fostering human capital, and we have always thought the way to do this was through education. But we are finding that educational success is correlated with and dependent upon strong family structure. Which comes first, educational achievement or strong family structure? Now we know: strong family structure.

    What public policies to pursue to encourage and enhance stronger families? Answer: fewer of them.

    The usual policy prescriptions — intervention and redistribution — have not worked, will not work, cannot work. We actually need less public policy, less intervention, less redistribution. If stronger families are best, also the most natural, then we should leave resources to families.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Photo by: scarlatti2004

  • Can We Replicate in the 21st Century What we Accomplished in the 20th? Not if We Handcuff Ourselves

    Can the American republic replicate in the 21st century what its people accomplished in the 20th: widespread economic prosperity at home, the conquering of tyrannies and fascist ideologies abroad, the application of science to eradicate disease and improve life? These accomplishments took great efforts and costs, but the benefits were extraordinary. I have been optimistic my whole trend-forecasting career, but now it has become harder to be optimistic.

    We come to the close of the first decade of the 21st century confronted by profound economic, social, political and international challenges. Of course we differ on what policies to pursue; that has always been the case. But now we differ on fundamental goals, purposes and world-view. We don’t even agree on the positive benefits of pursuing prosperity through free-market, private-sector economic growth and development, or about conquering tyranny and fascist ideologies. And science, which used to be the objective pursuit of truth, has become politicized.

    This is a very different world than that experienced by my parents. They experienced a “typically extraordinary” rags-to-riches 20th-century American story. Born around the time of the First World War to first-generation parents, they lived in meager circumstances and worked continuously and constantly from a very young age while going to school, and of course handing their earnings over to their moms to help cover expenses. (I remember my dad telling me one of his earliest memories is a paint brush in his hand and a rope tied around his waist, being lowered into a tight spot his father, a housepainter, could not reach.)

    Dad worked his way through college and optometry school, attending nights and weekends to shorten the route; he wanted to be a surgeon, but this was the fastest path to being called “doctor.” They married young, started a family and moved to the suburbs. Dad started his professional practice and would work all day, come home for family dinner every night, then shoot downstairs and see patients until the rest of us were all in bed asleep. Mom was a wonderful homemaker to us four kids, and was also quite active in community and volunteer activities. When the last of her four kids was in middle school, she went back to work. At 50 years old she started commuting to New York daily, taking the bus into the Port Authority and then walking cross town to her job.

    Yes, they lived the American dream.

    Their legacy: putting all four of us through college (two through graduate school!), and watching all of us, all in long-time first marriages ourselves, do the same for our kids, their grandchildren. And giving us all wicked work ethics as well! Not bad, mom and dad, not bad. We could never thank you enough.

    Could they do it again today? I wonder. They benefited from public education, public transportation, a military that kept us safe, and a free market economy that provided opportunity and rewarded work, thrift, and responsibility. That was a lot, but compared to today, that’s limited government.

    Housing
    Mom and dad bought their house in 1946 for $30,000 and lived in it for nearly 50 years. They had to scratch together every dime they had to come up with the 25% down payment, and were lucky to get the loan at all (I remember my father telling me the loan officer got cold feet at the last moment). But it was a good bet for both the bank and my parents. Federal government policy promoted a stable family home market, stable house financing, a growing economy, private sector employment, etc. Local government was responsive and responsible; property taxes were reasonable. They paid off the loan early, and in what used to an American milestone, owned it outright (with no debt).

    Today the housing market has been exploded, and then imploded. Government policies have promoted instability, speculation, leverage, unimaginable debt, and irresponsibility. Would I advise my daughter, at a comparable stage of life, to buy a home? Not in these circumstances.

    Education
    Dad graduated from City College in New York when expectations and results were of a far higher standard than what exists today. He went to the Southern School of Optometry because it was the cheapest he could find, with the shortest route to graduation. He worked his way through school when it was still possible to do such a thing; he did not go thousands of dollars into debt, let alone tens of thousands, to get an education.

    Today the education industry has wildly inflated prices, and produces poorer results. Would I advise my daughter to go into thousands of dollars of debt to get a degree? Not in these circumstances.

    Starting and running a business
    Dad benefited from low barriers to entry and operation of private businesses. He was not inundated with laws, regulations, permits, fees, taxes and a minefield of liabilities covering every single action he could possibly take.

    Today all businesses are. According to Philip Howard, chair of CommonGood.org and author of Life Without Lawyers: Restoring Responsibility in America, a flood of statutes, rules and regulations is killing the American spirit. Legal mandates have accumulated like sediment in a harbor, robbing small business entrepreneurs of the opportunity to serve us all by hiring, producing goods and services, and thriving.

    Would I advise my daughter to start a business? Not in these circumstances. As Howard writes:

    “Small business owners face legal challenges at every step. Municipalities requires multiple and often nonsensical forms to do business. Labor laws expose them to legal threats by any disgruntled employee. Mandates to provide costly employment benefits impose high hurdles to hiring new employees. Well-meaning but impossibly complex laws impose requirements to prevent consumer fraud, provide disability access, prevent hiring illegal immigrants, display warnings and notices and prevent scores of other potential evils. The tax code is incomprehensible.”

    The very idea of progress today is slowly being strangled. In each of the examples listed above, all of which are keys to our future prosperity and well-being – housing, education, and small business – government intervention has made matters worse. Often designed, ironically, to help those who need it, government policies and programs have had a perverse effect, resulting often in the opposite of what was intended. These policies have stifled, not encouraged, self-reliance and self-sufficiency; have punished, not rewarded, thrift, responsibility and frugality; and have accentuated, not alleviated, poverty and inequality. And they have done so at a staggering cost to future generations.

    And yet, on the other hand, this is still America
    Despite these problems there are reasons to be optimistic about the American future. They include:

    1. SIZE: a large, growing and dynamic (not static) nation
    2. DEMOGRAPHICS: a large, growing and melding (not melting but melding) population
    3. MANUFACTURING, INDUSTRY, TECHNOLOGY & EXPORTS (still the world leader in all these categories)
    4. ENERGY & NATURAL RESOURCES (plentiful, if we have the political will)
    5. CAPITAL (traditional and non-traditional sources)
    6. LAND & AGRICULTURE (plentiful and fertile)
    7. MILITARY POWER & PROWESS (not to impose our will but to protect our interests)
    8. ENTREPRENEURSHIP, INNOVATION, CREATIVITY (they are in our DNA)
    9. EDUCATION, R&D (we realize their value and prioritize them)
    10. CONSUMERS GOTTA SPEND (we are as acquisitive as conditions allow)
    11. THE CULTURE (Americans will not settle for an unsatisfactory status quo)

    Would I advise my daughter to be optimistic, not give up, to go forward and work to better herself and her wonderful country by fighting to change harmful policies?

    You bet I would.

    I bid you a happy new year.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Photo: Paula Selbert was laid to rest at Riverside Cemetery in Rochelle Park, NJ on December 12, 2010, next to Harold, her beloved husband of 60 years, who passed away in 2003.