In the first of three parts of this series, I discussed the general topic of what has been called a “jobless recovery,” following the Great Recession of 2008. In parts two and three, I examined at length the culprits that have been implicated as being the cause of our weak economic recovery: an outmoded and, to date, unresponsive system of higher education; and income and wealth inequality.

Analyzing the root causes of this unusually poor economic recovery is important not merely to ensure that blame is correctly assigned. The real importance lies in our efforts to remedy the problem: If we are focused on the wrong cause, not only will our solution fail to revive the economy, but also the potential for harm in repairing something that wasn’t broken could be enormous – and, in the long run, further negatively impact the nation.

And it’s not possible to look at the issue of misdirected blame without asking if the misdirection has been inadvertent or purposeful: Are there people of power and influence who are knowingly misrepresenting the cause of our weak economy in order to protect another possible cause – or their own interests – from closer inspection?

Let’s first consider some recent articles that link our weak economy to income and wealth inequality:

• Concerns about the economic damage resulting from income inequality are not limited to fringe organizations or individuals. A report from S&P Capital IQ (“How Increasing Income Inequality Is Dampening U.S. Economic Growth, and Possible Ways to Change the Tide,” Aug. 5, 2014) states:

  “At extreme levels, income inequality can harm sustained economic growth over long periods. The U.S. is approaching that threshold.”

• Commenting on the S&P Capital IQ report, David Leonhardt of The New York Times (“A New Report Argues Inequality is Causing Slower Growth. Here’s Why It Matters,” Aug. 5, 2014) refers back to the thinking of John Maynard Keynes in attributing actual causality:

  “High inequality can feed on itself, as the wealthy use their resources to influence the political system toward policies that help maintain their advantage.”

• Economics Nobel laureate Joseph Stiglitz says that income inequality is no accident, in an opinion piece in The New York Times (“Inequality Is Not Inevitable,” June 29, 2014):

  “If it is not the inexorable laws of economics that have led to America’s great divide [in income and wealth], what is it? The straight-forward answer: our policies and our politics.”

  “So corporate welfare increases as we curtail welfare for the poor.”

  “The true test of an economy is not how much wealth its princes can accumulate in tax havens, but how well off the typical citizen is.”

  “Ensuring that those at the top pay their fair share of taxes – ending the special privileges of the speculators, corporations and the rich – is both pragmatic and fair. We are not embracing a politics of envy if we reverse a politics of greed.”

• New York Times columnist Eduardo Porter (“Income Inequality and the Ills Behind It,” July 30, 2014) is explicit in describing how politics has supported and maintained income inequality:

  “Supreme Court rules allowing a rush of private money into political campaigns have underscored how plutocracy could purchase the policies it wants to maintain its privilege, locking inequality in forever.”

• And in a more recent New York Times column (“Equation Is Simple: Education = Income,” Sept. 11, 2014), Eduardo Porter provides a graphic analysis of the impact of income redistribution from the poor and middle class to the rich, over the past 35 years:

  “Imagine if the United States government taxed the nation’s one-percenters so that their post-tax share of the nation’s income remained at 10 percent, roughly where it was in 1979. If the excess money were distributed equally among the rest of the population, in 2012 every family below that very top tier would have gotten a $7,105 check.”

  Porter notes that income inequality also spills over into K -12 education:

  “It contributes to the residential segregation that cordons off rich school districts from the poor and reduces support for public education among the wealthy Americans who can opt out.”

  Finally, Porter comments on the effect of income inequality on higher education, noting that college graduation rates have leveled off at about 44 percent (a figure that includes associate’s degrees), and the U.S., having once led the world in the percentage of adults with college degrees, has fallen to 11th place. Porter quotes a professor at Harvard in explaining how we have failed, as a society, to provide low-income people a path to a college degree and a better life:

  “College pays off on average, but it has a ton of risk. Lower-income families can’t buffer that shock.”

However, these reports and opinions have done nothing to stanch the flood of finger-pointing at higher education as being the root cause of our weak economy, resulting in no shortage of recommendations for how to fix the system. Consider:

• Forbes, “Beltway Needs New Higher Education Ideas,” June 26, 2014, protesting the costs of higher education:However, these reports and opinions

  “The current proposals to allow more students to afford what is an increasingly expensive education would try to shift that burden back to taxpayers through the government, which itself is already in debt.”

  “Lowering interest rates merely encourages students to continue to seek what are increasingly unaffordable educations.”

• U.S. Senator Mike Lee (R., Utah) wants to break up the higher education “cartel” by allowing states to accredit non-traditional providers of education, thereby permitting them to offer credit-bearing courses (Slate, “Smash the System?” Aug. 6, 2014):

  “Under state accreditation, higher education could become as diverse and nimble as the job-creating industries [that are] looking to hire. Authorized businesses could accredit courses and programs to teach precisely the skills they need for their employees. Apple or Google could accredit computer courses. Dow could accredit a chemistry program, and Boeing could craft its own aerospace engineering ‘major’.”

  (Of course, businesses used to do exactly that kind of training for their new employees, but training then was built on top of an existing college degree. Businesses now want new employees to arrive job-ready, claiming that they can’t afford to train them themselves. However, if they could charge their prospective employees with training costs, by being empowered to offer credit-bearing courses, they would have an entirely new business line – and in the process, they would be able to eliminate the middlemen – those institutions known as “colleges” and “universities.” Brilliant! Why has no one thought of this before?)

• In the Huffington Post, (“U-Lab: Prototyping the 21^st Century University,” Aug. 11, 2014, the writer claims that higher education is “overpriced,” is “out of touch with the changing market needs,” “the curriculum is outdated,” and “its purpose is outdated,” resulting in:

  “…the need to regenerate the university from its roots by reinventing its purpose in this century.”

• The governor of North Carolina sees the purpose of higher education to be entirely about creating employable workers (Inside Higher Ed, “North Carolina Governor Doubts Value of Some Degrees,” Sept. 29, 2014):

  “We’ve frankly got enough psychologists and sociologists and political science majors and journalists. With all due respect to journalism, we’ve got enough. We have way too many.”

  (The Governor’s undergraduate major was political science. Perhaps he means we once needed political science majors, but we don’t need them today.)

• An article in the Los Angeles Times (“Student Debt Carves $83 Billion a Year from Housing Industry,” Sept. 22, 2014) has a subhead that says it all:

  “414,000 home sales will not happen in 2014 as high payments [for student loans] reduce purchasing power.”

  (Wow! If ever there was a demonstration of how overly expensive higher education was destroying the nation’s economy, this must surely be it!

  Except…the firm that did the study is hardly a neutral observer. It makes its living advising the housing industry. The conclusion is based on the impact of student debt payments of people aged 20 to 40. The firm calculates that every $250 in monthly student loan payments translates into $44,000 less in purchasing power and extrapolates that to $83 billion in lost sales.

  There are several things wrong with this analysis.

  First, it is by no means certain that if there were no student debt, all of the money now used to pay off loans would be used to buy houses.

  Second, there is considerable anecdotal evidence that many young adults are in no hurry to buy a house, and that they do not have the same level of interest in home ownership as did their parents.

  Third, college graduates have, as a whole, much greater lifetime earnings than high school graduates. Had they not gone to college, they would have had no debt – but their low income as high school graduates would still have prevented them from buying a home.

  Fourth, loan payments of $250 a month amount to $3,000 per year – but as we saw in the last blog post in this series, median income for college graduates aged 25 to 34 has declined by more than $4,000 since 2007. If college graduates were being paid today at the same rate as in 2007, they could pay off their loan and buy a house. So the problem is not that college is too expensive, necessitating student loans. It is that young college graduates are being undercompensated in a troubled economy.)

There are also many reports that indicate that the wealthy, politicians and pundits are not exactly falling over themselves to address income inequality in order to create a stronger economy. For example:

• An article in The New York Times (“Fighting Back Against Wretched Wages,” July 27, 2014) quotes the CEO of Caterpillar, a company that recently imposed a six-year wage free on its employees, despite corporate profits of $5.7 billion last year:

  “I always try to communicate to our people that we can never make enough money. We can never make enough profit.”

  (The Times also points out that the CEO’s own compensation has increased more than 80 percent over the past two years, so apparently when he says “we can never make enough money,” he is not referring just to the corporation.)

• And New York Times columnist (and Nobel laureate) Paul Krugman (“Those Lazy Jobless,” Sept. 22, 2014), quotes House Speaker John Boehner, as he channels his inner Barry Goldwater in declaring that laziness is holding back employment:

  “[People have] this idea [that] I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.”

  Krugman points out:

  “Only 26 percent of jobless Americans are receiving any kind of unemployment benefit, the lowest level in many decades. The total value of unemployment benefits is less than 0.25 percent of G.D.P., half what it was in 2003. It’s not hyperbole to say that America has abandoned its out-of-work citizens.”

  “Now, as anyone who has studied British policy during the Irish famine knows, self-righteous cruelty toward the victims of disaster, especially when the disaster goes on for an extended period, is common in history.”

• In an op-ed from the Heritage Foundation (Providence Journal, “Government Loses America’s 50-Year War on Poverty,” Sept. 27, 2014) the author reviews the current state of affairs, 50 years after Lyndon Johnson declared a war on poverty:

  “For the last 45 years, there has been no improvement [in self-sufficiency] at all…The culprit is, in part, the welfare system itself, which discourages work…”

  (Perhaps it is only coincidental, but it was 45 years ago that the minimum federal wage had its greatest buying power.)

  The writer of the op-ed also claims that the level of poverty is overstated, because the:

  “Census ignores almost all [federal] welfare spending.”

  (So in a brilliant leap of logic, he says that having a low enough income to qualify for federal welfare benefits means that you’re not poor, because the welfare benefits bring you out of poverty! No need, then, to raise the minimum wage. But as we saw above, Speaker Boehner blames the welfare system for creating laziness and dependency. So there are those who want to sharply reduce welfare benefits but not increase the minimum wage, an outcome that would do nothing to reduce poverty, but would certainly increase misery.)

It’s not that there isn’t public support for addressing income inequality. For example:

• Regarding the peaceful demonstrators who were demanding an increase in the federal minimum wage, an article in the Providence Journal (“Higher Pay Turning into Civil Right,” Aug. 3, 2014) states:

  “Although surveys generally find that 8 in 10 Americans back a minimum-wage increase, a sizable contingent believes that wage hikes aren’t necessary. These include some think tanks, business owners, trade associations and ordinary citizens who think low-wage workers are paid what they’re worth, as a free market system dictates.”

  And, in a hopeful sign, not everyone thinks that colleges exist solely to create workers:

• Columnist Frank Bruni (The New York Times, “Demanding More from College,” Sept. 7, 2014) quite rightly notes that all of the recent criticism and conversation about college seems to be directed at linking a college education and a good job. He believes that there is a need:

  “for college to confront and change political and social aspects of American life that are as troubling as the economy.”

  He wants students to:

  “use college… as a staging ground for behaving and living in a different, broader, healthier way.”

  “College can establish patterns of reading, thinking and interacting that buck the current tendency among Americans to tuck themselves into enclaves of confederates with the same politics, the same cultural tastes, the same incomes.”

Where do we go from here? How do we break the logjam?

Let’s start by acknowledging we are nibbling around the edges of a huge problem: reviving the American economy. We are looking for easy answers, because the real answers are just too hard. And our ostensible leaders are too focused on keeping their own jobs to provide anything that resembles leadership.

Franklin Delano Roosevelt did his level best to lead this country out of the Great Depression. He was loved by some and despised by others for his efforts – but he tried to do what he thought was right, rather than placing his reelection at the top of his agenda. He gave us the minimum wage, Social Security and federally insured banks, none of which existed before he was president and none of which we would, as a nation, be prepared to give up today. He was a leader.

Lyndon Johnson declared a War on Poverty, and gave us the Civil Rights Act, the Voting Rights Act and Medicare – and the opposition to all of those actions was loud and demonstrative. Yet few Americans today would argue for repealing any of them. Lyndon Johnson was a leader.

John Kennedy asked people to think of what they could do to help their country, rather than the other way round. Americans rallied to his call. Would they do so if such a call were issued today? We may never know, since our leaders are too timid to ask. They would rather mislead than lead. They would rather try to focus our attention on the wrong issue than to lead on the right issue. Their dithering – and, even worse, their deliberate deceptions – are endangering not just the long-awaited economic recovery, but also the very fabric of what has made America great.

In 1944, President Roosevelt proposed the GI Bill – a device for putting returning servicemen (and servicewomen) into college. A terrible idea! The notion that people from the blue-collar classes could attend college? The presidents of Harvard and the University of Chicago – giants in their field, in a way no college president is today – vociferously opposed such a plan.

They were wrong, of course. The number of Americans with a bachelor’s degree or higher rose from five percent in 1940 to more than 20 percent in 1970 – a quadrupling in just 30 years, a growth unprecedented before or since – and the American economy blossomed as never before. Americans invested in the nation’s infrastructure, focusing on creating a better future, rather than greedily focusing on their own immediate interests. President Eisenhower, in the middle of a huge national expansion of colleges and universities, also pushed for an interstate system of highways. How did he pay for such an ambitious agenda? At the time, the top tax rate was 91 percent – essentially a confiscatory rate on earnings above a certain level – but the economic pie was expanding so quickly that those who were very economically successful by and large saw the benefits of creating more broadly shared wealth.

American democracy is grounded on creating a balance between the opposing principles of the free market and individual liberty on the one hand, and shared benefits and success for all on the other. The balance point changes over time, and in the 20th century it moved toward the idea of broader and shared success: witness the expansion of educational opportunity, first with universal, free, K–12 education, and then with publicly supported higher education. Now the balance point has shifted in the other direction, and the priorities and values of the 20th century seem to have abandoned and forgotten.

We are a nation in peril. We seem to have lost our way. There is no national consensus, because our leaders have focused more on telling us what they think we want to hear, rather than taking the risk of telling us what we need to know.

We need leadership, not blame and recrimination. We need truth and candor, not lies and obfuscation. We need to recognize that America’s economic strength will ultimately come from broad and shared success, not just the success of the one percent. We need to address income inequality and restore economic balance, and we need to stop blaming higher education for all of our economic woes.

Where is the leader with the courage to take on the tough issues? Who will stand up for America?

In my last post, I considered the claim that more and better education is the answer to fixing our troubled economy. However, as I pointed out in the first post to this series (Sept. 8), there is a second explanation to the uneven nature of America’s economic recovery from the Great Recession: the game may be rigged to favor the very rich at the expense of everyone else. If this explanation has merit, then trying to repair the economy through more and better education will eventually prove to be not just futile but potentially very destructive to long-established institutions of higher learning.

In a brilliant essay based on his talk at Lehman College in April of this year, Anthony Carnevale, a professor at Georgetown University, points out two largely contradictory schools of thought that underlie our democratic beliefs: the power of free markets versus the right of the individual to prosper (The Herbert H. Lehman Memorial Lecture, “The U.S. Workforce and Higher Education: A New Deal,” April 2, 2014). There is considerable evidence that our nation suffers when these two competing philosophies are out of balance. There is also considerable evidence that our economy is suffering today because the interests of the individual are being trumped by the strength of the current political commitment to enhancing free markets.

Let’s look at some economic data:

• Between 2007 and 2012, the median annual income for a typical U.S. household fell (in inflation-adjusted dollars) from $55,627 to $51,017 (Los Angeles Times, “For Family, Double-Trouble Woes,” June 29, 2014).

• Paradoxically, not withstanding a drop in median income, there has been growth in total income earned by Americans – but it has been distributed unevenly. Since 1949, the share of income growth that has gone to those in the top 10 percent of income has steadily increased. Between 1949 and 1953, 20 percent of all new income earned by Americans went to the top 10 percent of earners. Between 1975 and 1979, 45 percent of total new income went to the top 10 percent. Between 1987 and 1990 the fraction had risen to 80 percent. And between 2009 and 2012, it was 116 percent – all of the new income went to the top 10 percent and sixteen percent of the existing income of the other 90 percent was effectively transferred to the top 10 percent. Talk about the rich getting richer, and the poor getting poorer! (The New York Times, “Economic Expansion for Everyone? Not Anymore,” Sept. 27, 2014.)

• There is also stratification within the top 10 percent. The top 3 percent of families share 30.5 percent of all of the income earned in America; the bottom 90 percent share just 52.7 percent of all of the income (Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2010 to 2013,” September 2014).

• This stratification is even more acute at the very top of the income ladder. In 2010, 93 percent of the additional income created in America went to the top 1 percent (The New York Times, “An Idiot’s Guide to Inequality,” July 23, 2014).

• And it’s not just about income. Wealth (accumulated assets) is even more skewed. The median net worth of the top 20 percent of American households rose 11 percent between 2000 and 2011, to $630,754; during that same 11 year period, the median net worth of the bottom 20 percent of American households dropped from minus $905 to minus $6,029 (United States Census Bureau, “Income and Poverty in the United States: 2013,” September 2014).

• Wealth is even more highly stratified than income. The top 3 percent of all families share 54.4 percent of the collective wealth; the bottom 90 percent share just 24.7 percent (Federal Reserve Bulletin, “Change in U.S. Family Finances from 2010 to 2013,” September 2014).

• And the richest 1 percent in the United States now owns more wealth than the bottom 90 percent (The New York Times, “An Idiot’s Guide to Inequality,” July 23, 2014).

• What about life at the bottom of the economic ladder? The news is not good. The federal minimum wage ($7.25 an hour) has not come close to keeping pace with inflation. Its buying power peaked in 1968, when it was worth almost $11.00 per hour in 2014 dollars (S&P Capital IQ, “How Increasing Income Inequality is Dampening U.S. Economic Growth, and Possible Ways to Change the Tide,” Aug. 5, 2014).

• Low wages at the bottom account for the following troubling statistic: 20 percent of U.S. households earned less than $20,900 in 2013 (United States Census Bureau, “Income and Poverty in the United States: 2013,” September 2014).

• Frighteningly, almost 20 percent of children younger than 18 (14.7 million) were living in poverty in America in 2013 (United States Census Bureau, cited above).

• The very bottom of the economic ladder is crowded – 2.3 million families have incomes that place them more than $15,000 below the federal poverty line ($23,830 for a family of four) (United States Census Bureau, cited above).

• Despite the significant income advantage college graduates have over high school graduates, they, too, have been negatively affected in recent years. For people aged 25 to 34 with a bachelor’s degree or higher, median income in 2012 was $49,950, as compared to $54,020 in 2002 (The Chronicle of Higher Education, “Racial Gaps in Attainment Widen, as State Support for Higher Ed Falls,” June 3, 2014).

This is all very depressing – but what does it mean?

Unfortunately, it’s not just about what has happened to families and individuals. A wire service story about a recent report from Standard & Poor’s begins “Income inequality is taking a toll on state governments,” and the subtitle to the story is “Stagnant pay means less spending, compelling states to consider tax increases to preserve programs,” (Associated Press, “Wealth Gap Is Squeezing State Revenue,” Sept. 16, 2014).

It is generally understood that consumer spending accounts for 70 percent of the economy – but if median family income is not rising, then we would not expect to see an increase in consumer spending – and no increase in spending would explain a very weak economic recovery (as we are indeed now experiencing).

Increasing the number of people with a college education – desirable in its own right, to be sure – would not significantly alter this situation because, as we have seen, salaries for young college graduates have fallen in recent years – and more low salaried and underemployed college graduates will not provide the stimulus, in the form of consumer spending, that our economy needs to begin to grow again.

So if more and better education is not the silver bullet that will impart vigor to a stagnant economy – if, instead, our economy is stalled because of overreliance on an unfettered free market that has led to a level of income and wealth inequality not seen in more than 80 years – what should we do to get out of the economic doldrums?

In a word (actually, in a phrase), more money must flow into workers’ pockets and away from corporate interests. Too much of corporate wealth is sequestered, stimulating nothing. Most of the money in wage earners pockets, on the other hand, is quickly spent, and this money, as it circulates through the economy, causes the economy to grow.

Now this is very controversial stuff. We Americans believe strongly in the rights of the individual, and we celebrate those who, through hard work and intelligence, have become hugely successful. Bill Gates, Warren Buffet and Steve Jobs are names known to virtually everyone, because they epitomize the American success story. If, for example, we were to suggest taxing these people at higher rates, wouldn’t that discourage young people from trying to follow their lead? Don’t we need fewer restrictions on entrepreneurship, not more? Isn’t this a call for wealth redistribution? Isn’t this a call for class warfare?

I submit that wealth redistribution has already happened – except that the redistribution was from those in the lower socioeconomic classes to those at the very highest levels of the economy. The rich have gotten a lot richer, and the poor and middle class are all significantly poorer. Moving money back from the one percent to the bottom 90 percent would start to restore the balance in income and wealth to what it once was.

But how would we actually achieve wealth redistribution? Our economy is growing much more slowly than have past economic recoveries, and a shift in both the type and number of jobs lost and added has resulted in a widespread loss of prosperity on the part of most Americans. Growing our economy must be a primary goal – and the “elect me and I’ll create jobs” cries of candidates for political office, however well intended, are not backed up with any real plan to make good on the claim.

There are two competing theories for growing both the number of jobs and the size of the economy. One is to cut taxes and spending, and minimize (or eliminate) deficit spending – the model that a typical family would likely use, in the event that one of the wage earners in a family lost his or her job.

The second is for government to stimulate the economy by spending more, either by running a deficit (something that is possible at the federal level), or, at the state level, by raising taxes – the argument in both cases being that a financial catalyst is needed to jolt the economy back into action.

Interestingly, there are examples of both models in place at this very moment. Kansas, with a very conservative governor, cut taxes very significantly, in the hope of stimulating existing businesses into expanding and attracting new businesses to the state. California, with a very liberal governor, placed a surtax on the incomes of the wealthiest Californians, resulting in an increase in state tax revenues of more than 13 percent, allowing significant new investments in higher education and other social programs.

The experiment in Kansas failed. Few new jobs were created, tax revenues are down, and both Standard & Poor’s and Moody’s lowered the state’s bond rating – meaning that when Kansas borrows money, it must do so at a higher rate of interest (Providence Journal, “How Not to Get Your Country Back,” Sept. 17, 2014). California, on the other hand, after years of cutting programs and services, is seeing a resurgent economy.

Here’s another way to redistribute wealth. Raising the minimum wage to $10.90, in order to match the buying power it had in 1968, would put money in the pockets of people who would spend it, enhancing consumer spending – and, as we have seen, consumer spending represents 70 percent of the economy. Raising the minimum wage would also lead to salary increases for those who are currently earning just slightly more than the current minimum wage. People at the bottom of the socioeconomic ladder would, with higher salaries, be more self-reliant and less dependent on programs that currently make up the social safety net. Higher wages would lead to higher tax revenues at the state level, thereby reducing demand on social support programs, whereas a stagnating level of tax receipts has led to a growing downward spiral in the quantity and quality of services the states can provide.

At the federal level, it is past time for the federal government to disallow corporations to reincorporate in other countries to avoid paying taxes in the U.S., or to sequester their earnings in offshore accounts, rather than repatriating them to the U.S. (where, of course, they would have to pay taxes). These sequestered funds now amount to more than $2 trillion – almost twice the size of the total student loan debt – yet it is student loan debt that is routinely trotted out as a major contributor to our weak economic recovery (not true, by the way, as I documented in my blog post of Aug. 4, 2014). We also need to stop allowing hedge fund managers to pay tax at the rate of just 15 percent on what is euphemistically called “carried interest” (read: “profit”).

In sum, the idea that the solution to our weak economic recovery lies in “fixing” higher education is not borne out by the evidence. Rather, the pernicious effect of a growing inequality in wealth and income between the very top of the socioeconomic spectrum and virtually everyone else is stultifying our economy and creating profound social impacts (such as a sizable jump in the level of poverty among children in recent years) that will reverberate for decades.

So why is all the focus on fixing a “broken” system of higher education?

Next week: Misdirecting Blame: Accidental or Purposeful?