Despite its position as the world’s unrivalled superpower, international comparisons show the U.S. slipping on a number of fronts. On education, the United States has been falling behind, in everything from science and engineering to basic literacy. The U.S. once had the world’s highest proportion of young adults with post-secondary degrees; now it ranks 12th, according to the College Board, an association of education institutions. (Canada is now number one.) In 2001, the U.S. ranked fourth in the world in per capita broadband Internet use; it now ranks 15th out of 30 nations, according to the Organisation for Economic Co-operation and Development. “We have been involved for three decades now in paring back public commitments and public spending, and that started with the Reagan revolution. We are living with the outcomes and consequences,” says Michael Bernstein, an economic historian at Tulane University in New Orleans.
Meanwhile, prolonged rates of high unemployment are taking a toll on families today, and will for years to come. Studies have shown that the longer a person is unemployed, the more difficult it is to find a job—partly because skills deteriorate, and partly because employers become suspicious of why someone hasn’t worked for a year. “The United States is expanding its underclass of a whole group of individuals who will become less employable, less integrated, more subject to criminal and other deviant behaviour—and probably become part of the larger problem of structural poverty in America as well,” says Sherle Shenninger, director of the economic growth program at the New America Foundation, a Washington think tank.
Arianna Huffington sees an even starker big picture emerging from the reams of bad economic news. “As we watch the middle class crumbling, for me this is a major indication that we are turning into a Third World country,” said Huffington, founder of the Huffington Post, in an interview. “The distinguishing characteristic of the Third World country is you have the people at the top and the rest—you don’t have a thriving middle class,” says Huffington, whose new book is entitled Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream.
America is moving “from the Jetsons to the Flintstones,” she argues. “The American dream was already based on the idea you could work hard and do well and your children will do better. Now we are confronted with downward mobility across the board. You have the phenomenon of unprecedented numbers of college grads who can’t get jobs.” The current public sector cutbacks in education and infrastructure will only make things worse, Huffington says. “You are both hurting people in the present, and basically undercutting your economic growth and prosperity in the future.”
But the problem isn’t simply a product of the current recession or the 2008 financial crisis. It is now well understood that for years Americans lived beyond their means on borrowed money.
The real estate bubble enabled many homeowners to borrow against inflated house prices, giving families the feeling that their wealth was increasing. It was all a mirage. Low interest rates and easy credit allowed consumers to spend enthusiastically, masking the fact that the standard of living and incomes were stagnating, and public and private investment was lagging.
Over the past decade, private sector job growth was sluggish. Combined with recession job losses, there are now only as many private sector jobs as there were in early 1999, a decade ago, while the population continues to grow. And incomes stagnated for a full decade—the longest such period since the U.S. Census Bureau has been keeping track of household income.
“There is certainly a serious erosion of both the American social contract and the American dream for a great majority of Americans,” says Shenninger. “There is a worrying trend that the private sector has not been able to generate jobs for now more than a decade.”
While business productivity increased—workers created more output per hour of work—that did not follow the traditional model of translating into higher wages. “Eighty to 90 per cent of productivity gains went to corporate profitability—which means that in order to make up for the gap in demand, working families resorted to relying on rising housing prices and debt,” says Shenninger. Workers lost the ability to bargain for wage increases as they competed with lower-wage workers in Europe, Asia and other emerging markets. Meanwhile, corporate earnings exploded.
Clyde Prestowitz, a former Reagan administration trade official and president of the Economic Strategy Institute, says the scope of the problem came into focus for him one day last year when he read, in the same newspaper, that China was launching a new 240-mile-an-hour high-speed train, and then an article about city leaders in Pittsburgh considering a tax on university tuitions in order to fund the municipal employees’ retirement pension plan. “I thought, the Chinese are building world-record trains and we’re taxing kids who go to school!” says Prestowitz. “We’ve been in decline for quite some time—we haven’t recognized it and have been fooling ourselves. But we’ve gotten to the point it’s hard to not see.”
There are numerous theories about the path America took to get where it is. Prestowitz blames the American approach to trade and globalization. A former trade negotiator who worked on NAFTA and advised Ronald Reagan’s commerce secretary, he argues that at the root of the problem is a long-term American naïveté about global trade, a case he makes in his book The Betrayal of American Prosperity.
