The Land of Limited Opportunities

The tide is coming in, but it’s not lifting all the boats. Some have sprung leaks, and others have run aground. The tide is swamping them. It was President John F. Kennedy who popularized the rising tide metaphor for progress. He said, “A rising tide lifts all boats” in a 1963 speech when gains in the standard of living were still being spread across the entire society. That was a long time ago. …

Last week was full of good news. The Dow-Jones index went from one new record high to the next, and gains were even reported in real estate. House prices were on their way up. Even the employment rate showed improvement with the U.S. economy, adding 236,000 new jobs in February, considerably more than predicted. The recovery was underway despite the self-inflicted wounds in Washington and the crisis in the eurozone. Everything was going according to plan. Or so it seemed.

The script for the recovery was written by Fed Chief Ben Bernanke. Like Kennedy, he put his faith in the power of the tide. A tide of money, to be exact, except that Bernanke (always the economist) didn’t use metaphors but economic jargon. “Wealth effect” is the key term he used to describe his growth strategy. Zero interest and quantitative easing would drive the markets, support real estate prices and thereby encourage the recovery. And lo and behold, the Bernanke recovery is actually gaining traction. That’s the good news. Now the bad: The strategy has a social impact in that it widens the chasm between the super-wealthy and the rest of society.

Average Incomes Have Fallen Sharply

The stock market has set new record highs, and corporate profits have doubled since the year 2000. But neither of these yardsticks are very good indicators for the overall health of the economy. The best indicator is how the middle class — or whatever remains of it — is faring.

Taking inflation since 2000 into account, average income has actually fallen some 8 percent. The labor market remains in crisis, and even the latest unexpected good news on that front can’t change the fact that 12 million Americans can’t find jobs. The army of long-term unemployed is growing, and more and more Americans need second and even third jobs to maintain their standard of living.

Bernanke’s recovery hardly helps the broad masses. That’s most evident in the studies undertaken by the economic researcher Emmanuel Saez, who writes that between 2009 and 2011 the wealthiest 1 percent of society saw their income increase by 11 percent while the remaining 99 percent had to make do with a 0.4 percent gain. Inequality is the price of economic liveliness and is even desirable, provided it serves the interests of the weakest among us. Even the political philosopher John Rawls argued that stance. But modern financial capitalism turns that philosophy on its head: It mostly benefits the wealthy to the exclusion of everyone else.

Government Aid Programs Cut

The “land of unlimited opportunity” has degenerated into a myth. Americans call the saga of anyone who starts with nothing and achieves a life of luxury a rags-to-riches story. Such stories are becoming increasingly rare. There’s scarcely another nation with less upward mobility than the United States these days. But that’s not due to inequality of opportunity. Theoretically, nothing stands in the way of a girl from the Camden slums who dreams of a career on Wall Street.

It’s about the chance to profit from equality of opportunity: functioning families who want to instill a thirst for knowledge in their children as well as the presence of social services that can intervene when families fail. It’s precisely here where the iron hand of economizing rules, ever since Congress abandoned its role in shaping such services in order to balance the budget. In addition to military expenditure cutbacks, the red pencil brigade is also cutting assistance programs like Head Start, which were designed to prepare low-income children for school.

Here, the Federal Reserve is powerless. Economic policy can mitigate crises but cannot create sustainable and balanced social growth. Bernanke needs political allies who realize that now is not the time for an orgy of blind economizing measures. On the contrary: Current low interest levels would allow investments that would otherwise be too expensive to consider. When, if not now, should early intervention be expanded; when, if not now, should the widening social chasm be closed?

But good sense is no longer the prevailing wind in Washington. The tide inexorably rolls in and many Americans can’t swim.