Beginning in the early 1970s and continuing today, troubling socioeconomic trends have beset America's middle class. The trends include a declining percentage of children born to married parents, a declining percentage of children living with both biological parents, a declining percentage of home ownership, a growing divorce rate, flattening or declining test scores, and increasing indebtedness, drug addiction, and obesity. Of course, there are plenty of exceptions among these general trends.
At the same time, the lower class has experienced a dramatic reduction in abject poverty and horrendous living conditions. Some lower-class Americans still reside in awful conditions or wander the streets homeless and drug-addicted, but many also reside in housing that is nicer than my boyhood home in a working-class neighborhood in St. Louis. Unfortunately, in a modern version of a Potemkin village, the nicer housing hides the fact that self-defeating habits, behaviors, and family arrangements have not only continued to plague the lower class but have migrated to the middle class, particularly at its working-class end.
Meanwhile, the upper class, as well as the so-called creative class right below it, have become increasingly separated from the other classes in not only income and education but also psychologically, physically, culturally and socially. The wealthy and well-educated invest more in their children, live in certain urban enclaves where schools and employment opportunities are much better, and subscribe to bourgeois values of getting married before having children, giving their children the advantage of growing up with both biological parents, working hard to climb the social and career ladders, and keeping up with the Joneses in what they wear, what they drive, where they dine, where they vacation, and how they signal their virtue (largely feigned) about social justice, diversity and inclusion.
To take just one telling statistic, over half of childbirths are out of wedlock for mothers with a high school degree or less. The number drops to five percent for mothers with a bachelor's degree or more.
Politically, the upper class is mostly progressive on social issues and mostly capitalist on economic issues. But as educated as they are in terms of years of schooling and the elite universities that they attended, they have no idea how to address the decline of the middle class or the behavioral problems of the lower classes.
On their left hand, they want to continue showering those below with government money in the form of income redistribution, handouts and subsidies, while wanting to extend free healthcare, free daycare, and free college tuition to all. They also tend to support a woman's right to choose with respect to the controversial subject of abortion, although abortion among their own ranks has fallen by thirty percent over the last two decades while it has risen by twenty percent among the poor.
On their right hand, they hold the conflicting belief that if the market were allowed to work its wonders, class distinctions and income gaps wouldn't matter, because the lower classes would have a lot more income.
The elites' diagnosis of what is wrong in American society excludes their role in what is wrong. Most notably, they no longer seem to embrace noblesse oblige; that is, the obligation to help the classes below them develop productive habits and behaviors. Instead, they have embraced productive habits and behaviors for themselves while condoning and even encouraging the opposite for those below them. They have become two-faced elites, or in highfalutin French, élites à deux visages.
This is especially true for the elites at the top levels of the media, entertainment, sports, and advertising industries. Much of what they produce is vapid, vulgar, vacuous, voyeuristic, and violent. And to continue with the alliteration, many of the celebrities and sports stars they spotlight are vain, venal, vampy, vainglorious, vile, villainous, voluptuary, and vitriolic. Then the producers of this effluent rationalize the cultural harm they've done, with the argument that they are simply giving the masses what they want in a free market and free society. Likewise, in hyper-hypocrisy, corporate sponsors run propagandic ads about how they give back to the community and further social justice, diversity and inclusiveness—all the while debasing the culture and isolating themselves from the consequences.
In the glory years of the United States from 1946 to about 1973, the upper class was not as segregated economically as today, and the income gap between the rich and the rest was much smaller than today's gap. The rich could be found in small towns as well as large cities, and they often lived in middle-class neighborhoods, where they attended the same church as everyone else, were members of the same fraternal organizations as everyone else, sent their kids to the same schools as everyone else, and often married below their class.
As an example, one of my boyhood friends lived in a large but unpretentious home that took up two lots behind my family's 900 sq. ft. bungalow. His dad was a business executive who wore suits to work and drove a big Buick with accessories that my family's car didn't have: power windows, an automatic transmission, air-conditioning, and a V-8 engine. My dad, who was a tile setter, drove an old Dodge that had a feature the Buick didn't have: a rusted-through floorboard where the pavement could be seen flashing by. Despite these differences, there was no air of superiority on their part and no class envy on our part. But there were shared values, shared expectations for the next generation, and a common civic-mindedness and sense of community.
My wife's experience was similar in her hometown of Bradford, Penn., where wealthy oil and industrial families had values in common with the working class and were paternalistic to their employees. Her immigrant grandfather, who worked as a field hand for Kendall Oil all of his adult life, was so loyal to the company that he picked a gravesite that overlooked the company's refinery.
My wife's dad never attended a four-year college but became a mortgage loan officer for a local savings and loan, served on the school board, and was active in the Kiwanis and Masons. Merchants on Main Street were an integral part of the community and therefore didn't find it necessary to spout platitudes about giving back to the community, as do companies today that are headquartered far away on a leafy corporate campus or in a city skyscraper.
Many of the merchants were later replaced by Walmart and other national chains. At around the same time, local industrial companies were offshoring their manufacturing.
Now Amazon is transforming the retail industry even more, and its executives and highly-paid staffers at headquarters are even further removed from the communities that the company serves. For example, the median household income in Arlington County, Virginia, where Amazon is locating its second headquarters, is three times higher than in Bradford. Granted, the company is establishing distribution centers around the country, but the pay is low and the employees are treated like automatons, having to follow proscribed movements and being closely monitored by software algorithms. This degree of industrial engineering far exceeds anything imagined by Frederick Winslow Taylor, who was the first to apply time studies to manual labor; or to anything imagined by Frank and Lillian Gilbreth, who were the first to apply motion studies to manual labor.
All of these changes have resulted in lower costs and prices, which, economists say, benefits consumers. But if the benefits are so great, then why have blue tarps appeared on the roofs of houses in Bradford, due to homeowners not having the money for repairs? Why do more townsfolk sit on threadbare sofas on their porches and watch cars go by their unkempt property? Why do kids without any apparent parental supervision walk aimlessly around town? Why is there a surge in SSI enrollment and housing vouchers? Why have academic and disciplinary problems skyrocketed in local public schools? Why have drug dealers moved to town from Buffalo? Why was the house of my sister-in-law and brother-in-law burned to the ground when drug dealers apparently mistook it for the house of a rival dealer? Why has there been an increase in alienation and a decrease in affiliation, civic pride and civic-mindedness?
The standard answer is that these are the regrettable consequences of creative destruction—of innovative enterprises overturning backward-looking ones, and of capital seeking its highest return—which, according to the conventional economics wisdom, results in wealth creation, economic growth, an improvement in the quality of life for society as whole, and only temporary setbacks for those on the receiving end of the destruction. This belief is so widely held by thinkers, going back to Austrian economist Joseph Schumpeter, that only a Luddite or socialist or populist or nitwit could disagree with the net benefits of creative destruction.
Well, this nitwit says that claims of cost and price reductions from creative destruction are oftentimes misleading, because the economic accounting does not include the social costs of creative destruction, such as increases in welfare, crime, and remedial education; or collateral damage to personal pride, civic pride, family relationships, the social fabric, and the body politic.
If these costs had been accounted for in past cost-benefit calculations, would the same corporate decisions have been made? No one knows, and few elites who benefit directly from creative destruction seem to want to know, especially those in the financial industry.
Speaking of which, much of the economy has been financialized since the 1970s, resulting in skyrocketing incomes for the best and brightest who work in finance. Today, nearly a quarter of the fifty wealthiest Americans made their money in the financial sector, about a tenfold increase since the 1970s. This is quite different from the situation in the years prior to 1970, when wages and education levels in the financial sector were about on par with other industries. Finance jobs were seen in 1941 as so mundane and career-limiting that only 1.3% of Harvard Business School graduates went to work on Wall Street. (Source: The Meritocracy Trap)
The conventional economic wisdom holds that jobs that produce the highest returns command the highest salaries, overlooking the fact that a lot of self-dealing and cronyism takes place in the setting of compensation, a fact that I saw firsthand as a management consultant who helped set executive compensation. The conventional wisdom also holds that the shift of the smartest people to finance has resulted in financial innovations, capital efficiencies, and readily available credit for consumers and corporations. There is a lot of truth in this, but there is also something left unsaid. To see what that is, let's return to my father-in-law, the former mortgage loan officer in Bradford, Penn.
He was able to look beyond home appraisals and financial statements to know if a mortgagee was a good credit risk. That's because he understood the local housing market and probably knew the applicant personally. Such judgment was taken out of the hands of loan officers when mortgages were securitized—when very bright financiers on Wall Street came up with the idea of buying mortgages from banks and savings and loans, bundling them, slicing the bundles into individual securities with different risks and returns, and selling them to institutional and private investors.
You know the rest of the story: This financial innovation triggered the housing crash, which in turn triggered the Great Recession, the disgusting government bailout of financial firms, a decline in home ownership, and the Federal Reserve's quantitative easing, which has fundamentally changed national and global monetary policy for the worse.
My father-in-law didn't have the education to know how to securitize mortgages, but he knew that it was folly for mortgage lenders to not know borrowers or the local housing market. But finance jobs like his became superfluous as the financial sector became concentrated on Wall Street and other money centers and became staffed with graduates from the top MBA schools and with quants with PhDs in physics and mathematics. Small-town mortgage officers became clerks who completed paperwork to be sent out of town. This caused another tear in the local social fabric.
It's a similar story with the growth of the legal profession, the accounting profession, the regulatory consulting profession, the lobbying profession, and other highly-paid and -educated professions that have grown in status, pay and political power in lockstep with the growth of the regulatory state, the ballooning of the tax code, and the juicing of the stock market by the Federal Reserve.
Graduates of top law schools earn about $200,000 as beginning associates at top law firms in big cities. Moreover, all of today's Supreme Court Justices graduated from either Harvard or Yale Law school, and about half of the members of Congress have law degrees.
It's easy to see how entrepreneurs benefit society and deserve big financial rewards for starting new businesses and industries. The same with scientists who make scientific breakthroughs. The benefits are less clear in such professions as law, finance, regulatory consulting, and lobbying. And the benefits become even less clear in light of the state of the nation—namely, its huge deficit and continued deficit spending, its unfunded liabilities at the state and national levels, its divisive politics, its foolish expensive wars, and its growing divide between the upper class and the middle class. It may be just a coincidence, but the more educated and isolated the elites have become, the less the nation has lived up to its ideals.
A closing confession: This is being written in a gated, suburban community in the foothills of the beautiful Catalina Mountains, overlooking a nearby golf course and the City of Tucson below, a city that has a poverty rate twice the national average, a rate of property crimes that ranks in the top five nationally, deteriorated roads and parks, substandard public schools, and middle-class neighborhoods that have seen their better days.
My wife and I would like to go home again—to live in a working-class neighborhood like the ones of our childhood. But as Thomas Wolfe famously wrote, we can't go home again; or more accurately, we would find it contrary to our self-interest to do so. The reason is that the working class and much of the larger middle class are no longer what they used to be.
Going home again to a working-class neighborhood in the City of Tucson would likely mean security bars on our doors and windows, homeless people wandering the streets or sleeping in the alley behind our house, inconsiderate yahoos in the neighborhood making life miserable for the remaining good people, and other conditions that we wouldn't want to deal with in old age. It would be a similar experience in my hometown of St. Louis and my wife's hometown of Bradford.
I guess that makes us élites à deux visages and thus part of the problem.