Watching the battle in Wisconsin it is clear that the historic deal that created the great American middle class is in danger of unraveling. Government workers have long exchanged greater job security and higher pensions for lower earnings. As private sector job insecurity grows and pay levels shrink, this deal is under attack. The pressures on the middle class are coming from everywhere. The global economy built on the technology of cheap, wireless communication, inexpensive computing power and containerized shipping has reduced the leverage that workers once had to organize and withhold their labor. When faced with labor unrest, all a company needs to do today is move to another location. That works for the private sector, but obviously can't work for government. Government can outsource some functions, but we are not about to bus school kids to India.
There is also the pressure of ideology. In the case of wealthy conservatives, this involves the cynical manipulation of the average person, by creating a campaign of fear of big, powerful institutions -- including government. The 24-7 media reminds the middle class of the costs of government but not the benefits of government services. So they oppose taxes, join the Tea Party and then find their public schools and roads falling apart.
The middle class has seen the goalposts move farther into the distance and find themselves under increased pressure to consume more. A family in the 1950's did not face the barrage of web and cable based images of consumer goods that 21st century families encounter. Poverty is a relative phenomenon and if the neighbor's kids have an iPod and cell phone, then if your kid lacks these "essentials" they are now deprived. This adds pressure to the struggling middle class to remain in the middle class. During the real estate bubble the pressure to consume resulted in massive debt based on the presumed "equity" present in everyone's home. When that equity disappeared, the financial pressure on the middle class reached the boiling point. That is where you can find the economic roots of the Tea Party's anti tax mantra.
My concern about the direction of our fiscal politics is that the pressures we are under are leading to tax and expenditure reductions at the very moment when we need to increase them. Savings, taxes and expenditures need to grow if we are to build the infrastructure and educational institutions required to compete in the global economy.
The wonders of technology cost money and health care is no exception. Modern health care and our greater wealth have resulted in longer, healthier lives for many of us. According to the economic demographer Michael Haines, the life expectancy of an American at the turn of the 20th century was 51.8 years for white people and for black people it was 41.8 years. This rose to 60.9 and 48.5 in 1930 and 77.7 and 71.7 at the turn of the 21st century. These data of course tell us that we still live in a racist society and that the legacy of slavery remains. But they also tell us that in the modern world life expectancy has grown and all signs indicate it will continue to grow. As technology changes, our economic life changes. The relationships that form our social compact must also change: But in what way?
Certainly the retirement age must increase. When Social Security was enacted in the 1930's, most people didn't live to see 65 years of age and people did not collect their old age benefits for a significant period of time. Today we expect to live decades past 65, collecting benefits along the way. Unlike the New Deal era, many of us today are capable of productivity long after the age of 65. Although some professions, such as firefighters, construction workers, police officers, and miners, cannot work into old age, many jobs can be performed by older workers.
Raising the retirement age is central to solving the public sector pension issue. If our society gets older and people spend more years in retirement, then the costs of pension benefits must rise. This increase is added to the increased costs of health care. While some of the public sector pension and health benefits come from the savings of retirees, many of these benefits must be funded by taxes on current workers. As America's population ages, this situation will worsen. These facts of economic life are well understood, but are ignored by what passes for our current political dialogue. We need an honest and realistic national discussion of this issue, but instead we are subject to political manipulation and nonsense.
This brings us to the shameful spectacle of Governor Scott Walker in Wisconsin. He and his allies have decided that the way to respond to this changing world is to scare the living daylights out of government workers. Not only are their pensions to be reduced, but they are going to lose their right to collective bargaining. Starting with the Wagner Act during the New Deal, America's private sector workers were guaranteed the right to organize. While public employment has never received that form of protection and has been subject to a variety of limits, President Kennedy gave federal workers limited rights to organize in 1962. Most states allow public sector unions.
Public support for unions in America is declining. Gallup has been asking Americans if they "approve or disapprove of labor unions" since 1937. In the 1930's over 70% of Americans approved of unions. Support slipped a little during the late 1960's and 1970's but remained above 50%. Approval slipped below a majority (to 48%) for the first time in 2009. Interestingly, support increased to 52% in 2010. Still Gallup's polling indicates that most people expect unions's influence to decline in the future. It's clear that politicos like Scott Walker have read these polls and are riding these trends to score political points and increase their own clout and notoriety.
These efforts at union busting and eliminating the right of government workers to organize will not lead to a more constructive discussion of the need for change. Instead we will see further polarization and continued conflict. Government workers recognize the need to give back some of the benefits they have won in the past. Wisconsin's have already agreed to the Governor's financial demands. Certainly the events in Wisconsin provide an incentive to engage in a dialogue in other states before the right to speak itself is eliminated. For Governor Walker however, this is his 15 minutes of national fame. He is not just trying to reduce government expenditures, he is trying to destroy the power of Wisconsin's public sector unions. I think that is a losing and destructive strategy.