Hard Times & Harder Choices
In 2008 the world was hit with a financial crisis so devastating it can only be compared to the Great Depression that was experienced in the previous century. Hard Times by Tom Clark examines the vast social consequences of the Recession by focusing on those affected by it in Britain and the United States. The book features a series of striking interviews from those worst hit by the crisis and often alarming statistics that reveal the substantially unequal and flawed societies in which we live. As Yale publishes a new and updated paperback edition of Hard Times in the run-up to UK elections, writer and economic commentator Lyric Hughes Hale, editor-in-chief of EconVue, explores the arguments in the book and the implications of ‘hard times’ past, present and future.
Recent discussions about inequality have focused on wealth inequality, and with good reason. Thomas Piketty’s book Capital explores the idea that wealth is far more concentrated than income. According to the Center on Budget and Policy Priorities, 31% of income is earned by the top 3% of Americans, but the top 3% also owns 54% of assets. Hard Times by Tom Clark (with Anthony Heath) tells the other side of the story-income inequality. It confirms what most of us already sense, that happy times are here again for some, while others – and in fact most others – continue to struggle in the aftermath of the 2008 Financial Crisis. This book describes how desperate life has become for the working poor in the US and the UK. As the authors pessimistically conclude, ‘it is outright impossible to offer them any reassurance about when their hard times will end.’ The data they serve up is as devastating as the personal interviews that make their conclusions inescapable.
Both books stress that politics, not economics, will determine the future. However, the economy will certainly be a major focus of election debates in both countries.
What is most daunting and far reaching about the Great Recession is that it has disproportionately affected young people. Far from a temporary setback, this trend will continue, as a Malthusian tidal wave of the elderly becomes their children’s burden, if not their responsibility. Nowhere is this future more evident than in China, a result of the one-child policy combined with lengthened life expectancies. With a population of over 330 million people over the age of 65 by 2050, China is ground zero for a demographic revolution–and we should pity the ‘little emperors’ once their parents begin to age. For a true reveal of the problems China will face later in the century, In Line Behind a Billion People by Damien Ma and William Adams will open the eyes of those dazzled by GDP growth to what Asia will be facing just before the same wave hits here in the West. During the Depression, it was dreamt that China’s 400 million consumers would fill the gap in demand that had sapped Western economies. Then, as now, China cannot be counted upon to increase consumption in the face of looming expenditures for health care for its senior citizens. Global problems of this scale will require more than just trade to balance out future threats. They require new policies and an unprecedented amount of international cooperation.
In his best seller, Being Mortal Boston surgeon Atul Gawande discusses how our culture and the medical establishment combine to make less than optimal end of life choices available to the elderly, at huge cost on many levels. If we are unable to change our policies and our thinking about life’s final challenge, making access to health care more equitable, rational, and humane for the elderly, we will misallocate resources at an unsustainable level. All three books give a heightened sense of what really matters above the din of cocktail party talk, and create a sobering look at the forces that are creating personal unhappiness and political strife today, fuelled by growing inequality and exacerbated by demographics. The policy response to these realities has been ineffective in most countries and can only be solved if the right policy choices are made and resources are allocated effectively. Technology alone will not do the trick to even the playing field. Innovations are meaningless if they are not deployed. In the end, it will fall to politicians, spurred by the growing resentment of the heretofore powerless to initiate change.
Income is just one indicator, but it is easier to measure than health or happiness. Oxfam’s Wealth, Having It All and Wanting More put the wealth of the world’s richest eighty people into perspective:
The wealth of these 80 individuals is now the same as that owned by the bottom 50% of the global population, such that 3.5 billion people share between them the same amount of wealth as that of these extremely wealthy 80 people.
What are the policy prescriptions to counter this? Oxfam makes an ambitious list, which includes the obvious along with the impossible. Clark and Heath have a simpler prescription: ‘Jobs, fairer shares, and a decent safety net’. Surely, it all begins with jobs that produce both income and a social dividend.
Case in point: does anyone believe that the Middle East can become peaceful when 80% of young men there are unemployed? Or that Spain can prosper with a 50% youth unemployment rate? Should we be surprised at the sociology of Ferguson and the conflict between citizens and the police in the US? Summits of all kinds, whether it is the gathering of leaders in the Alps, or President Obama’s visit to India and Saudi Arabia, will be meaningless unless new policies are implemented that could disadvantage the powerful. A recent success—the Affordable Care Act (ACA) has resulted in a huge jump in health care coverage, especially for young people. But the ACA was hugely expensive politically to implement. Oxfam would blame this on the lobbyists.
Inequality in the UK and the US
Looking deeply at inequality with one very sharp lens can shed light on the worldwide challenge. Hard Times is focused on the English-speaking world, particularly the US and the UK. The inescapable conclusion on the part of the reader is that if rich developed countries can get things this wrong, where does hope lie for the developing world?
It is worth taking a look at the Charles Dickens novel of the same title. Hard Times was a counterargument to utilitarianism, the idea that a good society was one that produced the greatest happiness for the largest number of people. It was also a call to humanism, a view that happiness could not be achieved as a mathematical average based on facts. Clark’s book is focused on an existing trend towards inequality that strengthened as a result of the Great Recession. But the underlying logic of what true equality means is the same—even if overall economic conditions have improved on an average basis, as they have today, that is far from saying that suffering has been eliminated. Clark’s argument, as highlighted in the subtitle of the hardback of his book, The Divisive Toll of The Economic Slump is that in fact the misery has intensified even if the world as a whole has grown wealthier.
How does the Great Recession differ from the Great Depression? For someone with an interest in economic history, that is the true value of Clark’s meticulously researched and charted book. During the Depression, the poor suffered the most. But in what Clark calls our new hourglass economy, the middle class, not just low wage earners, has perhaps been damaged most of all, losing their formerly comfortable lives.
For poor people to be left behind as average incomes rise is nothing new in the Anglo-Saxon economies; but—in Britain at least—for stagnation to have set in the middle like this, and at the height of a so-called boom, is something disturbing and different. In the light of the great growth grab by the top 1%, it is worth checking whether it is not merely the lowly and modestly-paid who have been squeezed, but also those who might previously have thought themselves to be perfectly comfortable.
Clark follows up with a chart that shows a significant decline in real wage growth since the Great Recession for all wage earners, from middle managers to hourly service workers:
For the top 10% of earners however, wages have been increasing. The bottom 90% of earners has had either stagnating or declining real income for more than a decade. Clark describes the consequences of the loss of economic security, hope, and discretionary time and income this has created for the great majority of British citizens, resulting in what he calls the ‘social recession’. Happiness, as FDR understood, matters.
No Happy Ending
By nature the longest lasting issue is the effect of the Great Recession on young people, which brings us back to the demographic challenges ahead. Our economy has changed since the Great Depression; a world that valued physical labor and so older workers suffered most, but average life expectancy was under 60 years. Today experience and judgment are critical, especially in white-collar jobs, and older workers who can expect to live to the age of 80 might not have enough savings to retire. In contrast to the Depression, younger workers have been disproportionately and adversely affected by the Great Recession, especially those without employable skills, the ‘unqualified young’. The rate of home ownership by young families is the lowest on record, and their debt, thanks to student loans, has reached historical highs. They have suffered most of all in employment opportunities.
The problem is that once the young begin with a decline in wages, they never catch up in terms of lifetime earnings compared to their parents. So what is the problem and how can it be solved? I believe that Clark would endorse economist Joseph E Stiglitz’s view:
The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies – politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.
Only hard choices will prevent harder times ahead.