Will Equitable Growth Solve Our Economic Problems?
In recent months, I've shifted back and forth between presenting the negative case against Ben Cardin to presenting what I call "The Bread and Roses" agenda -- a new approach to the core issues of schools, work, time and money in America.
The case against Cardin is threefold. First, he must be held accountable for the great scandal of Maryland: Baltimore -- the 6th worst Crime City in America, and this inside our richest state. He is a powerful politician from Baltimore who has been in office for 50 years. And whether from indifference, or lack of leadership or failure to identify appropriate priorities, there has to be a reckoning. Second, there is his vote against the Iran deal, knowingly, and in league with Prime Minister Netanyahu, in his desire for an American attack on Iran. And third, his utter incompetence and lack of both understanding and judgment with respect to the Israeli-Palestinian conflict, the primary area in which he provides "leadership" to others in the Senate.
That said, let me now return to "Bread and Roses." Previously, and at greater length in Graceful Simplicity, I've approached the issue of consumption and need from a variety of angles and in a variety of conceptual frames:
- The imperative of severing family income from family needs fulfillment.
- The distributive principle we should embrace, "From each according to his ability to each according to his needs."
- The solution to our greatest problem: Create more good jobs by focusing on making bad jobs into good jobs.
- The re-think we must adopt: Define the purpose of our economic and social policies as a society that is "used friendly" for those with the Alternative American Dream (e.g. to have only modest consumption, sufficient to meet core needs, with income security, and enough leisure and energy to do and enjoy the simple things that matter most in life.)
All of these different threads lead to the same place, the need to walk our way through the major categories of spending in the household budget and ask: What are the needs being pursued? Will higher incomes solve the problems? What policy environment will lead to widespread need fulfillment? Let us start with Food and Clothing, on the one hand, and then Housing on the other -- they tell very different stories.
FOOD. We cannot understand the modern economy unless we understand food. For most of human history, and for most of mankind, most of human labor was devoted to producing enough food to stay alive. And indeed, it is still this way in very poor countries. Historically, most people worked 10 or 11 months, just to grow and process or to purchase the food they needed. As recently as 1900, many American households spent 50% of the household budget on food. Today average expenditures are only 13% and roughly 1/3 of that is for food away from home, and this is true across the income spectrum. Put in different terms, today we earn enough to cover our food needs by February 15th, rather than November 15th.
The great miracle of the modern economy was this revolution in productivity in the agricultural sector, in part seeds and fertilizer, in part, mechanized agriculture. It was this revolution that released the labor supply that made mass manufacturing possible.
With clothing, the story is much the same. At the beginning of the 20th Century, Americans devoted ten to fifteen percent of their spending for clothing. Today it is less than 5%. If we put it together, since 1900, the total, for moderate income households shifted from 65% of spending to 18% of spending. More powerfully put, Enough-Earned-For-Food-and-Clothing-Day went from August 1st to March 5th.
With a variety of caveats, and not going into the more subtle questions of nutrition, the basic picture is that overwhelmingly most Americans not only earn enough to cover their core food and clothing needs, they do so with a relatively small part of the household budget. Put differently, if every of sector was so functioning, we would all have lot's of leisure. Basically, within the larger background of events, widespread income growth has adequately dealt with core needs in this area.
HOUSING. We don't find a similar pattern with housing. Across the income spectrum, we spend between 30% to 40% of the household budget on housing, including utilities and furnishings. Somewhat higher than the 25% percent we spent in 1901.
How are we to account for this, that with our vastly higher incomes, we today, rather than taking the potential increase in leisure that we could have had, now spend vastly more in absolute terms on housing, and devote to it an even higher percentage of our budget. In terms of work, we today devote four full months of work, just for housing. One starting point for an explanation is John Kenneth Galbraith's The Affluent Society, written in 1959. For Galbraith this would have been a perfect example of the power of emulation, of "keeping up with the Jones's," -- a central driving force behind unnecessary consumption. And certainly it is true that one can easily get very comfortable with more and more luxurious homes, ad infinitum.
Ye, I think Galbraith was wrong. The entire picture changes if we reconsider the question: What is the central need we are concerned with when we enter the housing market? So long as we think of housing consumption as a response to physical needs, yes, much seems superfluous. But when Americans go to buy a home, and here I mean middle class and upper middle class Americans, the most important thing is, neighborhood, neighborhood, neighborhood. It is this that determines real estate values. And what people primarily want is safety and good schools. For me, safety is to be assessed in terms of the "Go out and play" standard. When parents can confidently say to their children, "Go out and play," you have a safe neighborhood. And when they can't, you have a problem.
Are there such good neighborhoods, say, inside the D.C. or Baltimore Beltways? The answer is, yes, but they cost. My neighborhood, where houses run around $500,000 doesn't really meet either standard. There are better neighborhoods, but who has $1 million for a house? And here's the main point: Income growth won't help. Suppose, out of the blue, everyone in the bottom 99% received a million dollar bonus that could only be used to live in a "go out and play" neighborhood with good public schools. What would happen next Sunday when a house went on the market in Summerset? A giant auction, in which 100,000 people would offer $1 million for the first house they could find. And then the price would rise to the market clearing level of perhaps $1.5 million or $2 million, at which there would be only one buyer for the one house on the market. The remaining 99,999 people would go back to where they lived, still unable to get into the good neighborhood. To solve the unmet needs we all have with respect to housing, we have to deal with neighborhoods, the ones we are in. For America it is a huge issue, if your standards are high: How do we become a country in which everyone can say to their kids, "go out and play" and every school is a good school?