Playing politics as our standard of living declines

Frank Levy & Richard J. Murnane

July 17, 1991|By Frank Levy & Richard J. Murnane

The MEDIA have begun to focus on America's standard of living.

Recession news aside, these stories emphasize long-run income trends: the rising fraction of adult children who live with their parents, the yuppies' conversion to prudent spenders, the slow growth in income that apparently will extend beyond recession's end.

Why do these stories appear now? How will they affect the 1992 election?

Their timing is explained more by demographics (the structure of family life) than economics.

The root economic problem -- the collapse of productivity growth and the stagnation of wages -- began in 1973 and has been known for some time.

But for the last 15 years the United States has undergone demographic adjustments that have kept living standards -- per-capita income -- rising in the face of stagnant wages. Women went into the labor force in large numbers. When the biggest portion of baby-boomers entered the labor force in the 1970s, they postponed marriage and childbearing. Per-capita income could rise, even though wages were stagnant, because the population contained more workers and fewer dependents.

The adjustments had their limits.

The participation of women 20 years of age and older in the labor force rose from 43 percent in 1970 to 59 percent today, but it now appears to be leveling off.

In 1980 children born at the peak of the baby boom were 24 years old. Many of them were happy to be singles supporting only themselves. Today that same group is 34, an age when families and children are now-or-never propositions. The recent rise in the birth rate suggests that now is winning over never -- but the new baby means that the paychecks that fed two must now feed three and pay for child care.

These numbers show that the rapidly rising tide promised by President Reagan never came in. This leaves a political vacuum.

Moreover, because low productivity growth has no simple solutions, it is unclear how the vacuum will be filled. Since the failure of supply-side tax policies, the Republicans have dealt with slow growth by avoiding the issue. They invoke a pure laissez-faire world in which the wisdom of the market is the only thing that counts.

The market is smart but not that smart, and pretending otherwise takes all national problems off the table.

In this laissez-faire world our low national savings rate, low investment rate and the low skills of our work force are all acts of nature, beyond the reach of government policy. Instead of offering growth, Republicans now offer protection -- from higher taxes, from quotas and other threats to the status quo. Protecting what one has is a smaller vision than the rising tide.

But it takes a vision to beat a vision, and the Democrats don't have one.

Twenty-five years ago the Democrats were the party of the rising tide, a status they achieved by solving a problem tailor-made for a strong government. In the 1960s productivity growth was strong. The problem was insufficient demand to purchase all that the economy could produce. The solution was the Kennedy-Johnson tax cuts in 1962 and 1964, a solution only Congress could implement. Since the early '70s, demand has been sufficient, but productivity growth has been weak.

Unlike a federal tax cut, which one institution decides on, higher productivity comes from better decisions in thousands of factories, offices, schools. The Democrats have not captured the living standard issue because they haven't figured out how a president can help improve these decisions.

A slogan of good jobs at good wages won't get votes unless there is a credible way to achieve them.

In 1980, candidate Reagan asked whether we were better off than we had been four years earlier. In 1992, we will be asked whether we expect our children to live better than we do. The candidates who can address this question convincingly will take a long step toward the White House.

Frank Levy and Richard J. Murnane, economists, are, respectively, professors at the University of Maryland School of Public Affairs and the Harvard Graduate School of Education.

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