Niall Ferguson: A Conservative Take on America's Economic Divide

Scott Houston / Polaris

There are “two nations; between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets; who are formed by a different breeding, are fed by a different food, are ordered by different manners, and are not governed by the same laws…THE RICH AND THE POOR.”

The British novelist (and later prime minister) Benjamin Disraeli wrote those words about England in 1845. But they could equally well apply to the United States in 2012.

Since the advent of Occupy Wall Street, there has been a tendency to assume that only the left worries about inequality in America. The implication of OWS’s division of the country is that “we” are “the 99 percent,” and therefore conservatives must necessarily be apologists for “the 1 percent.”

Regrettably, the Republican candidates for their party’s presidential nomination have scarcely mentioned inequality in their recent debates. They prefer to accuse President Obama of waging “class warfare” whenever he brings it up. With Mitt Romney close to tying up the Republican nomination, this looks like being the battle line for this year’s election. Indeed, his Republican rivals have started doing Obama’s work for him, questioning the morality of the millions Romney made from private equity. As the focus turns to his ‘effective tax rate of 15 per cent, the question is: Does Romney have a credible answer to the charge that he personifies the division between rich and poor America?

As the case of Disraeli illustrates, true conservatives are not complacent about inequality. They understand only too well that a capitalist economy must soon lose legitimacy if the benefits of economic growth flow only to a tiny elite.

Consider these stark facts.

Adjusted for inflation, the income of the average American male has essentially flatlined since the 1970s, according to figures from the Census Bureau. The income of the bottom quarter of U.S. families has actually fallen. It’s been a different story for the rich. According to recent work by Berkeley economist Emmanuel Saez, the share of total income going to the top 1 percent of families has more than doubled since 1979, from below 10 percent to a peak of nearly 24 percent in 2007. (It has since fallen, but not by much.) The share going to the super-rich—the top 0.01 percent—has risen by a factor of seven.

Americans used to be proud of their country’s reputation as a meritocracy, where anyone could aspire to get to the top with the right combination of inspiration and perspiration. It’s no longer true. Social mobility has been sliding in the United States. A poor kid in America now has about the same chance of becoming a rich grown-up as in socially rigid England. It looks like Downton Abbey has come to downtown U.S.A.

Left-of-center economists like Paul Krugman and Jeffrey Sachs explain this phenomenon with the following story. Financial deregulation by Ronald Reagan ushered in an era of rampant greed in finance; meanwhile, Republicans ruthlessly hacked back New Deal and Great Society social programs to finance tax cuts for their Wall Street cronies.

To make their point, liberals point to European countries like Denmark, Sweden, and the Netherlands, where the rich have not been getting richer and social mobility remains high. Conclusion? America needs European-style policies like the ones listed by Krugman in a recent column: “more nutritional aid for low-income mothers-to-be and young children…[improved]?public schools…aid to low-income college students…[and] a universal health care system.” And how would that all be paid for? You guessed right: higher taxes on the rich.

Arguments like these are already beginning to feature in President Obama’s speeches. Expect more of the same if, as seems increasingly likely, he finds himself going head to head with Mitt Romney in this year’s presidential election. After all, Romney seems to personify that top 0.01 percent that made its pile out of deregulated finance (private equity, in his case) and lower income-tax rates.

So what, if anything, can conservatives say in response? Step forward Charles Murray of the American Enterprise Institute, whose new book, Coming Apart, offers by far the best available analysis of modern American inequality—and a much-needed antidote to the campaign for a European America.

Murray is no apologist for Wall Street. Looking at the explosion in the value of the total compensation received by the chief executives of large corporations, he pointedly asks if “the boards of directors of corporate America—and nonprofit America, and foundation America—[have] become cozy extended families, scratching each others’ backs, happily going along with a market that has become lucrative for all of them, taking advantage of their privileged positions—rigging the game, but within the law.” There is not much in those lines that the OWS protesters would disagree with.

Yet Murray’s explanation for widening inequality is entirely different from the liberal story.

rich-poor-america-fe02-tease-2ndary New York socialites arrive at the New York Metropolitan Opera, as a woman scowls at them on Nov. 23, 1943. Weegee (Arthur Fellig) / International Center of Photography-Getty Images

Like Disraeli, Murray sees two nations where there used to be just one: a new upper class or “cognitive elite”—to be precise, the top 5 percent of people in managerial occupations and the professions—and a new “lower class,” which he is too polite to give a name. The upper class has gotten rich mainly because the financial returns on brainpower have risen steeply since the 1960s. At the same time, elite universities like Harvard (where I teach and where Murray studied) have gotten better at attracting the smartest students. The fact that these students are very often the offspring of better-off families reflects the fact that (as Murray puts it) “the parents of the upper-middle class now produce a disproportionate number of the smartest children.” They do this because smart people tend to marry other smart people and produce smart children.

Not content with being educated together and then marrying each other, members of the cognitive elite then proceed to work together and to live in the same neighborhoods, which Murray calls the “SuperZips” (the 882 richest zip codes in America). The resulting class of “Overeducated Elitist Snobs”—especially the ones living in Beverly Hills, Santa Monica, Malibu, Manhattan, and Boston—tend to be markedly more liberal than the national average. But this is mainly because, thanks to a new segregation along class lines, they “have little direct experience with the lives of ordinary Americans.”

The victims of the cognitive elite’s effective secession from any broader notion of American society are the new lower class: the Americans with nothing more than a high-school diploma, if that.

Murray vividly localizes his argument by imagining two emblematic communities: Belmont, where everyone has at least one degree, and Fishtown, where no one has any. (Read: Tonyville and Trashtown.) He then demonstrates how four great social trends of the post-1960 half century have hit the latter much harder than the former.

Marriage has declined in both, but it has declined further in Fishtown, where a much larger proportion of adults either get divorced or never marry, so that a far higher share of Fishtown children now live with a lone divorced or separated parent. Unlike Belmont, Fishtown has a sad underclass of “never-married mothers”—who also happen to be the worst-educated women in town.

Industriousness has scarcely declined in Belmont, but it has plummeted among Fishtown white males, an amazing number of whom are unable to work because of illness or disability, or have left the workforce for some other reason, or are unemployed, or are working fewer than 40 hours a week. The big problem here is not so much a lack of jobs as a new leisure preference (“goofing off” and watching daytime TV). The work ethic has been replaced by a jerk ethic.

Crime has become more of a problem in Belmont than in the good old days, but again it is much worse in Fishtown, where an alarming share of white males are either in prison, on parole, or on probation.

Finally, religiosity has declined in both towns, but much more steeply in Fishtown. Contrary to popular belief, Murray argues, it’s not the elites who have become secularized and the working class that has remained devout. In fact, church attendance is much lower in Fishtown than in Belmont.

As a consequence of these trends, the traditional bonds of civil society have entirely atrophied in lower-class America. There is less neighborliness, less trust, less political awareness, less of that vibrant civic engagement that used to impress European visitors, less of what the Harvard sociologist Robert Putnam, in Bowling Alone, called “social capital.”

And that, Murray concludes, is why poor Americans are, by their own admission, so very unhappy. Man is a social animal who can only really be happy in four social domains: family, work, local community, and faith. In poor America, all four are in a state of collapse. That is why “Fishtown” is such a wretched dump—the kind of benighted place where gangs of feral teens hang around on street corners trying to figure out what part of the local infrastructure they haven’t yet vandalized. We all drive through such places from time to time. Murray’s point is just how many Americans have to live in them.

So what is to be done to heal the rift between Rich America and Poor America? There are two obvious problems with the standard liberal prescription of increased welfare spending, financed by higher taxes on the rich. The first, as Murray points out, is that the welfare programs of the Great Society era were in many ways the cause of the breakdown of social order in working-class America.

The second is that this is a very strange time to want to import the European welfare state, with its aspiration to provide everyone with comfort and security from the cradle to the grave. In case you hadn’t noticed, that system is currently on the brink of fiscal collapse in its continent of origin.

Murray’s conclusion is that Americans need to steer clear of Europe and instead get back to their roots. We should scrap the institutions of the New Deal and Great Society and replace them with the system of guaranteed basic income he first proposed in In Our Hands (2006). And we should pin our faith on the four traditional pillars of the American way of life: family, vocation, community, and faith. These, Murray argues, were the true foundations of the American project, from Kennedy all the way back to Washington.

But can there really be a way back to an America in which divorce and illegitimacy are almost unknown and wholly deplored? An America in which nearly everyone can find fulfillment in hard work? An America in which whole neighborhoods are bound together by ties of trust and voluntary association? An America in which half the population goes to church every Sunday?

Can the inequalities described so vividly in Coming Apart really be overcome by somehow wakening the cognitive elite up to their civic responsibilities?

After the chronic incoherence of Occupy Wall Street, Coming Apart comes as a blessed relief. Still, as a historian, I found myself wondering if the line of continuity from Washington to Kennedy was quite as straight as Murray implies. Were Belmont and Fishtown really in such a state of blissful equipoise 80 years ago, when there was as much inequality—and far worse social deprivation—than today? It’s worth remembering that the 1 percent had a larger share of income and a much larger share of wealth in 1928 than in 2008.

Somewhere between the extreme scenarios of social collapse (“coming apart”) and great awakening (coming round, perhaps) there lurks the mundane possibility that the United States could muddle along for quite some time with its current levels of social polarization. After all, it took not just a Depression but a world war to produce the egalitarian, meritocratic America Charles Murray so fondly remembers.

Still, as the father of a newborn American, I would much rather he didn’t grow up in one of two hopelessly separate nations. So, rather than muddling along, I say we tackle the inequality issue head on. This is the perfect year to do it, after all. The choice in November will be stark. On one side, the president’s project to make America more like Scandinavia, with higher taxes on the rich and yet more federal programs to spend their money on the poor. And on the other?

As Murray shows, there is a conservative solution to the problem of inequality. Scrap the failing welfare programs of the ’30s and ’60s before they bankrupt America. Ensure that everyone has a basic income. Then simplify the tax code to restore the incentives that used to exist for everyone to work hard. Finally, end the state monopolies in public education to launch a new era of school choice and competition.

Calling Mitt Romney: read Coming Apart before your campaign comes apart. I know what you meant when you said you “like being able to fire people who provide services” to you. But no one ever got elected president with just 1 percent of the votes.