By Jacob S. Hacker
Having just finished a book entitled The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement-And How You Can Fight Back, I would guess that Anne Kim, Adam Solomon, and Jim Kessler (hereafter “KSK”) will accuse me of peddling a “message of misery.” My defense is the same one offered by Elizabeth Warren and John Halpin: I think political candidates and leaders should offer a message of truth. And the truth is that, after a generation in which more and more economic risks have been shifted onto the shoulders of hardworking middle-class Americans, the middle class is perilously insecure and palpably in need of a real agenda for economic change.
KSK don’t really dispute this reality–though they do make the common mistake of underplaying the risks inherent in the dynamism of our economy. They write, for example, that the median income is “nearly $80,000 for two-earner prime age households”–which is indeed what the data show. But that data, like all of the economic statistics they cite, are directly at odds with their own emphasis on the dynamic experience and forward-looking expectations of the middle class. That’s because these data are based on simple cross-sectional analyses of family income at a single point in time. If we instead look at family incomes using over-time studies, what we find is that middle-class Americans today are increasingly riding the economic roller coaster once reserved for the working poor, their pre-tax incomes rising and falling fully three times more violently than did middle-class incomes in the early 1970s. To take just one simple statistic, over a ten year period, families on average can expect their income in their worst year to be less than a quarter of their income in their best year–a dramatic shift toward instability since the 1970s. That means that a family with $80,000 in its richest year will, on average, have less than $20,000 in its poorest. It is surely a mistake to forget that Americans aspire to climb the economic ladder, and often do climb it. But it is just as much of a mistake to forget that Americans also fear falling from the economic ladder, and often do fall from it. Indeed, behavioral economics suggests that aversion to loss is often a more potent predictor of attitudes and behavior than attraction to gain.
All that said, I am completely in agreement on KSK’s first two points: Democrats have a middle-class problem, and it’s not just due to any disadvantages they have on cultural or national security issues. Among white middle-class voters, Democrats have been getting creamed. At the same time, class stratification in voting–with lower-income voters siding with the Democrats, and higher-income voters siding with Republicans–is stronger than in the past, not weaker. And there’s some evidence that voters are more motivated by economic issues in their voting decisions than they were in the past, too. Whatever the exact reasons for the Democrats’ middle-class deficit, it’s not a reflection of a new electoral world in which class no longer matters and cultural and security issues always trump economic concerns. As Ruy Teixeira and I put it in a piece we’re writing for the American Prospect, Democrats are, quite simply, losing on home court.
It’s when KSK move to their prescriptions that I find myself unmoved. They present their ideas as a bold break with Democratic orthodoxy, but to my mind, their message and its policy recommendations are utterly conventional. I am tempted to say that if a message of middle-class opportunity based on a bevy of targeted tax cuts for tuition and the like were an effective strategy, John Kerry would currently be sitting in the White House.
In truth, criticizing the economic program of the Democrats is like criticizing the plot of Cats–there’s no there there. In typically incoherent fashion, the Party has oscillated between defense of existing programs, which are increasingly threadbare, and embrace of fiscal probity über ales, which, whatever its economic merits, is a losing political strategy. Sometimes we hear about inequality, a problem that, frankly, resonates deeply with few middle-class voters. Sometimes we hear about Wal-Mart and the minimum wage, which aren’t bad subjects for a larger conversation but hardly substitute for an economic program. Amid all the hand-wringing and strategizing about messages and narratives, the fundamental problem consistently gets missed: Democrats need to articulate an underlying economic philosophy that not only motivates and clarifies what they say, but drives what they do in office. You can’t build a frame without a foundation.
As a starting point for such a philosophy, KSK’s emphasis on opportunity is appealing. But standing alone, it simply cannot bear the weight that they put on it. Yes, Americans have a deep faith in opportunity, but they are also deeply fearful about losing their economic security. (When opportunity-loving Americans were asked in 2005 whether they were “more concerned with the opportunity to make money in the future, or the stability of knowing that your present sources of income are protected,” 62 percent favored stability and just 29 percent favored opportunity.) And the folks who are most worried about their economic security are precisely those who have climbed up the ladder, not those stuck at the bottom–the folks who have chips to lose, not those who are trying to break into the game. More important, to treat the ends of security and opportunity as somehow in conflict is to miss the boat entirely. Economic security is the foundation of economic opportunity, and the erosion of the middle-class security is the greatest barrier today between American families and the American Dream.
In short, Democrats need to speak to both the fears and the hopes of the middle class. And here I agree with KSK’s critique. When Democrats talk about security they tend to focus on the amelioration of financial disaster. But a much more positive way to talk about security is as a means for families to get ahead. Just as businesses and entrepreneurs are encouraged to invest in economic growth by basic protections against financial risk (like limited liability for corporations and bankruptcy protections), so adequate insurance encourages workers and families to invest in their future. The worker who fears being laid off at any moment may be more productive in the short run. But in the long run, insecure workers tend to underinvest in specialized training; they are more reluctant to change jobs; they try to minimize their sense of job commitment to protect themselves against psychological loss. Similarly, the family barely scraping by may work more hours; but in the long run, insecure families are not going to be able to make the investments in education and other keys to their future that they should. Security enhances opportunity, and one of the things that government does best–or at least once did best, with Social Security, Medicare, the GI Bill, and a whole host of other measures that created and secured the middle class–is provide basic financial security.
It is notable, on this score, that KSK do not use the word “government” once in their manifesto, except in detailing the Republican attack. But any successful economic agenda will have to articulate a positive role for government. I don’t mean by this that Democrats should talk about government in general, which is never a wise course, just as talking about the economy is never as effective as talking about actual people who experience its ups and downs. I mean that Democrats should talk about the concrete things that government can do to provide security and enhance opportunity. I have outlined my own preferred roster of concrete steps in my book. But the point is that Democrats have to think beyond the next election and begin to articulate the rationale for enduring policies that help Americans deal with the new economic insecurity while anchoring the positive identity of the Democratic Party for decades to come.
With this approach, the Democrats’ position will be simple: providing security to expand opportunity. The Republicans, in contrast, will be offering only more of the same–more risk, more attacks on existing sources of security, more promises that the free-market and tax cuts will magically right all ills. Given the choice, most Americans will embrace an “insurance and opportunity society” in which they have the security to reach for the future over an “ownership society” in which they are ever more at risk. And with the home court advantage back, the Democrats’ electoral prospects will brighten considerably, whatever the state of play on cultural and national security issues.

Jacob S. Hacker is Professor of Political Science at Yale and a Fellow at the New America Foundation. His most recent book is The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement-And How You Can Fight Back. His 2005 book with Paul Pierson, Off Center: The Republican Revolution and the Erosion of American Democracy, is now available in paperback with a new afterword.

By William A. Galston
I agree with much of this memo. The Democrats do have a big problem with middle-class Americans, starting (but not ending) with white voters. Optimism sells better than pessimism. America does have large underlying economic strengths on which to draw in coming decades. Many progressives do have a distorted idea of what the middle class is and what it wants. Many signature Democratic ideas focus on those aspiring to enter the middle class, not those already there and seeking to move forward.
That said, I have two problems with the approach the authors advocate. First, optimistic policies need to be based on a realistic analysis of where we now stand. In my judgment, the American economy is experiencing structural problems that will hold most Americans back if left unaddressed–problems that middle-class tax breaks, no matter how well targeted, leave untouched. Second, as the authors know very well, the structural changes are reducing most Americans’ economic security, generating legitimate concerns that an opportunity agenda by itself cannot alleviate.
Structural problems. For most of the past century, wages and productivity have moved in tandem. As has been widely reported, however, the large productivity gains of the past five years have not been translated into gains for most workers. Wages are at their lowest share of GDP on record, falling almost 5 percentage points from their pre-recession peak. Median hourly pay adjusted for inflation is down, and even higher education has not served as an antidote. Hourly pay fell by 3.5 percent for female college graduates, and by more than 7 percent for male college graduates. Total compensation has also fallen sharply. Not surprisingly, the real median income of households headed by working-age adults has fallen by more than 5 percent since 2000. Virtually all income gains have accrued to the top 10 percent of earners, and also to retirees drawing higher-than-average shares of their income from investments.
With only 38 percent of Americans reporting an increase in take-home pay after deductions, rising prices for the basics–gasoline, utilities, property taxes, education, and out-of-pocket health care—have hit them hard. Caught in the squeeze between falling incomes and rising prices, personal savings have disappeared, actually entering negative territory in 2005 for the first time since the Great Depression. (For households headed by young adults under 35, the dissavings rate was a remarkable minus 16 percent!) These developments have become so obtrusive that even President Bush’s new Treasury Secretary has been forced to acknowledge them.
While the administration’s economic policies have done nothing to halt these trends and in some respects have worsened them, it would be unfair to blame the President and his advisors for everything that is going wrong. Between the late 1980s and mid-1990s, for example, the percentage of Americans covered by employer-based health insurance declined sharply. After a modest improvement during Clinton’s second term, the decline resumed, bringing the 2005 figure down to a level last seen in 1996. The wage picture requires an even longer view. Between John Kennedy’s election and Richard Nixon’s resignation, median earning of full-time male workers, adjusted for inflation, rose by roughly 40 percent, from nearly $31 thousand to about $42 thousand (in 2005 dollars). Since then, with modest ups and downs, they haven’t budged. Median male earnings were no higher in 2005 than in 1973. By contrast, median female wages rose by only 25 percent between 1961 and 1973 but then rose an additional 32 percent during the next three decades.
But to put these figures in perspective, consider that a household headed by two median-wage full-time workers, one male, the other female would have earned $66,683 in 1973 but only 9 percent more–$73,244–in 2005, a rate of annual increase so small as to be imperceptible. Real median household income has increased much faster, of course, but only because so many more women are working full-time than was the case in the early 1970s. Since 1973, the share of household income commanded by each of the bottom four quintiles-that is, the bottom 80 percent of households-has fallen significantly. Only the top 20 percent have registered gains, and most of those gains have been clustered in the top 10 percent. The economic escalator of the immediate postwar decade has been replaced by something more like an economic treadmill, except for those at or near the very top.
What’s going on? Most economists now believe that globalization has shifted the balance of power between labor and capital. Alan Blinder, a former vice chairman of the Fed and no wild-eyed radical, recently published an article in Foreign Affairs arguing that one of the dimensions of globalization–offshore outsourcing–will produce a “quantitative change . . . so large that it brings about qualitative changes.” He warns that “We have barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering.”¹
One of the consequences of this structural change is a shift of risk from the private sector to individuals. Unemployment now lasts much longer than it used to, and of workers displaced from full-time jobs since 2001, those who have found new full-time jobs have ended up earning, on average, 17 percent less than they did before. Not surprisingly, the probability that a family will experience an income drop of 20% or more has risen sharply in recent years. Since the end of the post-war boom in the early 1970s, in fact, income instability has increased much more rapidly than has income inequality.² While fears of outright job loss have ebbed, after more than three years of statistical recovery from post-9/11 lows, 64 percent of Americans–including 56 percent of college graduates–continue to report that it is hard to find a good job where they live. Fifty-two percent of Americans rate their personal financial situation as only fair or poor, a figure that hasn’t budged since early 2002.³
Security. It would be strange if the increased risks of the globalized economy had not heightened anxiety and insecurity. In fact, they have. According to a Pew Research Center report issued at the end of August 2006, 62 percent of American workers say that workers enjoy less job security than they did 20 or 30 years ago. The decline of employee benefits such as health insurance and guaranteed pensions appears to be at the heart of their concerns.⁴
The authors of this memo are not unaware of these trends, as they acknowledge elsewhere. Let me quote from a longer report to which they refer:

Much of the social contract that served American workers so well during the 20th century is slowly eroding. Since World War II, employers have been the principal providers of health care, guaranteed lifetime pensions, and stable long-term employment for the middle class. But this is changing as health care costs steadily rise, life expectancies increase, and deregulation, technological change, globalization, and fierce international competition have led companies to boost productivity and rein in compensation costs. Today, fewer companies provide health insurance, many ask employees to pay a greater share for coverage, traditional pensions are becoming extinct, and long term, lifetime employment with a single employer is now an anomaly. This has led to a tectonic shift in risk from employer to employee that must be the center of new public policies that modernize the social contract.⁵

This paragraph is a clear, accurate summary of an argument many of us have been making for some time. If you add to it the mounting fiscal pressures on public sector programs such as Social Security, Medicare, and Medicaid, you see overall trends that are not likely to fulfill long-standing American expectations about their economic and social arrangements. This eroding social contract is not a side show; it is the central development shaping the opportunity of Americans to get ahead during their working lives and to enjoy a decent, reasonably stable retirement. Otherwise put: the effective pursuit of opportunity rests on a foundation of security.
The bottom line. While I agree with the authors that Democrats’ economic program must reflect optimism and offer opportunity, I believe that it would be a serious mistake–for reasons of both policy and politics–not to take economic security concerns seriously. Let me go further. I believe that the economy and Americans’ perception of it have changed since the 1990s in ways that require corresponding changes in our economic agenda and in the ways we talk about it. An understandable nostalgia for the Clinton years must not fool us into believing that we can succeed just by dusting off and updating Putting People First. Selective benefits for the middle class are at best a small piece of the answer. We must be prepared to take on the larger structural challenges that have emerged since the end of the Clinton administration.
We can argue about the best way of doing this. I am open to the possibility that framing insecurity as a threat to economic opportunity may offer the best rhetorical roadmap. (Someone should test this hypothesis against its competitors.) My core point is substantive, not rhetorical: In the circumstances we now face, the real “politics of opportunity” must begin by taking security seriously. A narrative with a new social contract at its core will prove far more compelling than will a list of targeted benefits. And if a new focus on 21st century security as the basis for a rebirth of opportunity helps unify the moderate and progressive wings of the Democratic Party, so much the better.

William Galston is a Senior Fellow in Governance Studies at the Brookings Institution and co-editor of The Democratic Strategist.

^*Unless otherwise noted, all statistics are drawn from U.S. Census Bureau reports.

¹Alan S. Blinder, “Offshoring: The Next Industrial Revolution?” Foreign Affairs, March/April 2006.
²For the analysis on which this paragraph is based, see Jacob Hacker, The Great Risk Shift (New York: Oxford, 2006).
³Pew Research Center, “Economy Now Seen Through Partisan Prism,” Washington, DC, January 24, 2006.
⁴Pew Research Center, “Public Says American Work Life Is Worsening, But Most Workers Remain Satisfied with Their Jobs,” Washington, DC, August 30, 2006.
⁵Anne Kim and Jim Kessler, “The Politics of Opportunity: The Case for a New Middle Class Economic Message,” Washington, DC: Third Way, May 4 2006, p. 15.