Reclaim the American Dream

Another Blog Post By

Hedrick Smith

Economist with a Heart

Washington – Alan Krueger, the Princeton professor and economic adviser to two presidents who died last weekend, rang the alarm bell for me as a reporter six years ago with a disturbing speech that he gave, of all places, at Cleveland’s Rock and Roll Museum.

Krueger was one of those rare economists who break out of the ivory tower and plunge restlessly into the real world where the rest of us live and unearth vital and provocative insights into such disparate topics as rock and roll, the minimum wage, the opioid epidemic or what Krueger called “mind boggling” economic inequality.

In Cleveland,  Krueger let loose a thunderclap of empirical data to show that an astounding 84% of the entire nation’s growth in income from 1979 to 2011 went to the top 1 percent of families, and from 2000 to 2007 more than 100% of the growth in national income went to the top 1 percent.

His stark numbers stopped me cold. Until then, I had figured Occupy Wall Street’s chant about “the 99 percent vs 1 percent” was a catchy slogan that exaggerated reality. But Krueger’s figures proved that Occupy was right on. With hard data, Krueger documented that, in fact, the U.S. has not just an economic divide but a yawning canyon cleaving the super-rich from everyone else. And the canyon keeps getting wider and deeper.

 Rock & Roll and Winner-Take-All Economy

 Just pause for a moment and think about Krueger’s arithmetic with me. 

 If the top 1 percent reaped 84% of the gains from 1979-2011, that means the other 99 percent were left with just 16% of the gains. In other words, over three decades, the top 1 percent hauled in five times as much of the entire nation’s economic gains as all other Americans combined. And from 2000 to 2007, if the top 1 percent got “more than 100%” of the gains, that means the rest of America, taken as a whole, LOST MONEY in that same period.

As Krueger put it, we’re literally looking at a “winner-take-all” economy, and he pointed to the rock and roll music industry as an “extreme example” of America’s “super-star economy.”As an economist grounded in empirical data rather than abstract theory, Krueger had actually researched rock and roll.

So he was able to report that the prices of concert tickets had been rising faster than overall consumer price inflation, faster even than spiraling health care costs, and it was the super-stars who were reaping the gains. Top stars, he reported, could make as much as $100 million in a hot tour, while average performers, backup singers, and stage hands, like average working-class Americans, were languishing.

The Human Face of Economics

To Krueger, these were not mere dry statistics. They told a story of painful human consequences that deeply disturbed him.

Not only did gaping economic disparity seem unfair to Krueger, but by his analysis, it undermined America’s cherished claim as “the land of opportunity.” High walls of inequality, he reasoned, made it harder for poor kids to climb out of the ghetto. With widening inequality, Americans were less upwardly mobile than people in several European countries. America, he said, suffered from “the Great Gatsby curve,” the rich passing on class status, generation after generation.

Another consequence, according to Krueger, is that high inequality reduces the nation’s economic growth rate. Why? Because, as Krueger explained, the long-term stagnation of the American middle class from 1979 to 2011 meant that the great mass of American consumers had less buying power as an engine of economic growth, to drive factories to expand production, businesses to hire, wages to rise. His conclusion: Less growth for us all.

As a high-level policy adviser to Presidents Clinton and Obama, Alan Krueger had to keep watch on the commanding highest of the economy – jobs and overall US economic growth. But in his academic research, his eye often focused on the economic underdogs and how well or poorly they were sharing in the nation’s prosperity. That often led him to question
conventional wisdom.

Economics is a social science and Alan was someone who was really interested in the social part of it as well as the science part of it,” University of Michigan economist Beverly Stevenson told The New York Times. “He wanted to understand how people were doing, how people were feeling.”

 His Focus on the Underdogs

Krueger was probably best known for his challenge to the widely held belief that raising the minimum wage automatically leads to higher unemployment. Krueger and fellow Princeton economist David Card did field studies of the fast food industry on both sides of the state border between New Jersey and Pennsylvania in the late 1980s after New Jersey raised its minimum wage and Pennsylvania did not.

Contrary to economic orthodoxy, Krueger and Card assembled hard empirical data showing that employment actually went up in New Jersey as wages rose and jobs shrank in Pennsylvania despite lower wages. Krueger quipped wryly: “We tested the supply-and-demand curve, and it needs to be amended.”

Studying the long-term effects of recession, Krueger tracked the job struggles of certain workers, especially middle-aged men, many of whom fell victim to the opioid epidemic and then dropped out of the workforce entirely. Delving into job training and education, Krueger found that children performed better in life if they spent at least one year in a small class of 15 students or fewer before fourth grade.

Researching the high tech sector in Silicon Valley and elsewhere, Krueger helped expose the fact that some of the nation’s most high-profile and supposedly progressive corporations were holding down wages by imposing non-compete agreements on their employees, curbing their ability to seek better-paying jobs elsewhere.

After Krueger’s death, President Obama commented that “he saw economic policy not as a matter of abstract theory but as a way to make people’s lives better. He believed that facts, reason and evidence could make government more responsive.” More graphically, his economist colleague David Card remarked that Krueger “had headlights that went a lot further in the dark than anybody else.”

We have all benefited from Krueger’s relentless quest. He was constantly shining his light on the darker aspects of modern capitalism and pointing to ways that we could make it fairer and work better for millions of Americans who have been falling behind.