13 October 2008

The futility of class warfare

Bradley R. Schiller

The “race card” was once an effective ploy in electoral politics. Southern Democrats long used it to rally white voters. In the wake of the Civil Rights movement, the Republicans took possession of the race card. Richard Nixon used it to strike fear in the minds of white voters, helping to transform a solid South into a Republican bastion. That card still gets played on occasion. But with white voters receding into the minority in so many jurisdictions, the race card is increasingly viewed as not just an unfair ploy, but an inefficient one as well.

The preferred play of Democrats these days is the “class” card. The Democrats have increasingly tried to redefine the “them vs. us” struggle in terms of class rather than color. As they tell the story, economic prosperity is a zero-sum game. Income gains attained by the “rich” come at the expense of the “poor”. Corporations bestow lavish compensation on executive insiders while cutting salaries, benefits and jobs for hard-working Americans. A massive flow of campaign contributions assures that elected officials will protect and serve the rich, while simultaneously cutting holes in the social safety net. Tax cuts for the rich not only fuel conspicuous indulgence among the elite, but diminish spending on health services, school, and the safety of the poor. Wall Street gains at the expense of Main Street. It all boils down to “them” (the rich) vs. “us” (the poor and middle class). Barack Obama has used the “class card” relentlessly to enlist and energize his supporters.

Fluid economic classes • What frustrates the Democrats' use of the class card is the fluidity of class boundaries in the United States. Successful use of a splintering card requires a clear delineation between “them” and “us.” The race card has a physiological advantage in that regard. But the class card has no such evident demarcation. With the exception of Michael Jackson, people rarely change their color - or even try to. But people do change their economic status with amazing frequency. So it's never entirely clear who's with “them” and who's with “us.” Which makes it very difficult to wage class warfare.

Escaping Poverty • The Democrats want us to believe that a large section of the U.S. population is trapped in poverty and/or toiling at minimum wages just above official poverty lines. This is presumed to be the core constituency of the “us” team - the people who are permanently left behind as the economy grows and incomes of the rich rise to dizzying heights. But this presumption ignores the constant flow of people in and out of the poverty ranks.

Every year at least 1 million immigrants enter the United States, both legally and illegally. Overwhelmingly, they enter our labor markets at the low end of the wage scale and so are counted as “poor” by American standards. The influx of immigrants into the poverty population creates substantial churn in the “us” ranks. As past immigrants climb out of poverty of return home, they create a net outflow from the “us” ranks. This outflow is augmented by the ever-changing circumstances of the native-born poor. People fall into poverty for a variety of demographic and economic reasons. Job loss, divorce, and injury top the list of poverty-creating forces. Even in the best of economic times, these forces push people into poverty. But they don't necessarily keep people in poverty. Divorced moms hook up with new partners. Dependent children grow up. Unemployed workers find jobs. Injuries heal. So there is a constant outflow of poverty households as well. In fact, 2 out of every 3 households that fall into poverty in any given year escape poverty in the following year. In other words, most American poverty is temporary, not permanent.

Moving Up From Minimum Wage • Another rallying point for the class-warfare strategists is the minimum wage. Democrats decry that fact that the federal minimum wage stays so far below average wages. Even with the recent wage hikes (to $6.55 this July, $7.25 next year) minimum-wage workers won't be able to keep a family of four out of poverty. Working long hours at such dead-end jobs supposedly solidifies the position of minimum-wage workers in the “us” ranks.

The assignment of minimum-wage workers to the ranks of the downtrodden is at odds with the realities of minimum-wage experience. Most young people do in fact have first jobs that pay wages at (or below!) the federal minimum wage. Even Brad Pitt started at that level, hawking fast food in a chicken costume. But those entry-level jobs don't last long. Two out of three minimum-wage entrants are consistently earning wages above federal thresholds within two years of labor-market entry. After three years, only 15 percent of minimum-wage entrants are still toiling away at such low wages. There may be a subset of jobs in the U.S. labor market that will always pay low wages; but few workers get stuck in those jobs.

Rags to Riches • The relative absence of permanent poverty implies that the “us” ranks are pretty fluid. In extreme cases, people at the very bottom of the income distribution even move to the very top. Horatio Alger stories are more common than most people recognize. Oprah Winfrey - one of Obama's most visible and ardent supporters - herself rose from the bottom to the very top of the food chain. Bill and Hillary Clinton made a similar move. Obama himself didn't start so low nor rise so far up the income ladder, but he clearly joined the ranks of “them” when he started collecting million-dollar book royalties. When these self-appointed champions of “us” play the class card, they must be biting their tongue.

Turnover at the Top • Oprah's ascension from poverty to the pinnacle of wealth reveals that even positions in the ranks of the rich aren't permanent. Every year Forbes magazine compiles a list of the richest 400 Americans. The “Forbes 400” always arouses a lot of envy; energizing class warfare strategists. You needed at least $1.3 billion in assets just to join the Forbes 400 club this year.

But there is another dimension to the Forbes 400 that get little attention - the turnover in its ranks. Among the top 100 people on this year's Forbes list, fewer than 50 were on that list at all eight years ago. As in other years, there was a rash of newcomers who had made their fortunes in technology, investments, and entertainment. Some, like Oprah, had roots in poverty; most emerged from the “struggling” middle class that Hillary and Obama bemoan. The switched sides in the projected class warfare.

Mobility in the Middle • The most newsworthy team-switching occurs at the very top and bottom of the income distributions. But there is a lot of income mobility in the middle of the distribution as well. The Social Security Administration tracks people's wages throughout their worklife so as to compute an individual's retirement benefits. Those earnings histories allow one to ascertain where a person resides on the income ladder in any given year and to observe how often people change relative rankings over time. Successful deployment of the class card depends on people staying on the same income rungs over time, thus maintaining a clear delineation between “us” and “them”.

In reality, people don't stay on the same rungs very long. Some people rocket up the income ladder; others take a tumble. Cyclical forces, technological breakthroughs, diverse investments, and pure luck all contribute to this intra-cohort income volatility. Think of successive high school reunions. At graduation, some seniors are picked as “most likely to succeed”. One of the reasons we go to the reunion is to discover who really fared well - and who didn't. If you go every decade you'll be surprised how the line-up changes. The quiet nerd who everyone tagged as a loser just sold his hi-tech start-up for millions of dollars. The math wiz is on probation for computer fraud, and that wannabe real-estate tycoon is now working at Wal-Mart. Such dramatic reversals of fortune are witnessed at virtually every reunion. The recent turmoil in financial markets is sure to produce even more reversals of fortune at the next reunion.

Social Security earnings histories document these intra-cohort changes in income position. Over a fifteen year period, 70 percent of the workforce changes relative income position. The average move is 20 percent up or down the earnings hierarchy. Less than half of the workers who are at the top of the wage heap in one year are still at the top 15 years later. The same pattern is evident on the lowest rungs of the ladder: only 35 percent of the workers who were at the bottom 15 years ago are still in the lowest position now. This kind of musical-chairs mobility is what makes school reunions so much fun. This same intra-cohort mobility further blurs the distinction between “us” and “them”.

Mobility Expectations • The phenomenon of income mobility is so pervasive that it is near impossible to rally an army of “us” to do battle with “them”. The task is made even more difficult by even loftier expectations of switching sides. Public opinion polls reveal that a lot of average citizens expect to get rich some day. According to recent polls, one out of three American adults expect to be rich some day. If “us” people expect to be among “them” in the future, they are certainly not going to rally to the side of “soak the rich” proponents today. Why raise income or estate taxes that might come back to bite you after you finally “make it”? This pervasive belief in the American Dream - the notion that everyone has a shot at the brass ring - is the most formidable constraint on the effectiveness of the class-warfare card.

Trumping the Class Card • The economy is certainly not a strong suit for Republicans this year. But, clearly, the Democrats are not willing to place all their bets on the (weak) performance of the macro economy. They are hedging their bets by playing the class card - making the election look like an epic struggle between “us” (the vast middle class and poor) vs. “them” (the rich) between “Main Street” and “Wall Street”. Because this strategy is so at odds with both the realities and expectations of economic mobility, it ultimately fails to win the votes it targets.

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