Writ large, what’s happening in the United States? How did we get from Roosevelt and Eisenhower to Trump? What’s going wrong, what’s going right; and how can we fix it?
There’s been progress, for sure. We elected a black President, we’ve legalized gay marriage, and the computers we use for phones are superior to mainframes not long ago.
In terms of economic life, though, the 21st century has been one of disappointment. The poor are getting poorer. The middle-class is getting less upwardly mobile. The upper-middle-class is growing out of touch, so much that the lower middle-class hate-voted for a rich psychopath to spite us. The rich are not just getting richer, but greedier and stupider.
In the 1960s, the world economy grew at 5-6 percent per year, and U.S. research and development was a major reason for this. We led. After winning a war in the 1940s, we rebuilt the vanquished countries, instead of exploiting their position of weakness for some short-sighted, zero-sum gain. That approach worked so well that the countries disallowed (by the Soviet Union) from participating are still suffering for it. In truth, the main reason Eastern Europe is poor is not that “communism didn’t work” but, more specifically, that those countries weren’t allowed to participate in the Marshall Plan.
Yet, our country ran off the rails. It’s hard to say if it’s even capitalistic anymore. The Capitalist Party, the boardroom elite, seems no more devoted to capitalism and free markets than the Communist Party of Stalin’s Russia. They, in the Capitalist Party, collude with each other, they vote up each others’ “executive incentive plans” (and golden parachutes), and they generally have the system rigged so a social elite wins, irrespective of market forces or the decidedly middle-class notion of “merit”.
Subtly, in the 1970s, old-style Gilded Age elitism came back, with more force in the 1980s and ’90s, and now it dominates the business environment outright. In my view, this had not much to do with traditional left-right politics; Reagan didn’t cause it, Clinton didn’t slow it, the Bushes were oblivious, and Obama couldn’t stop it.
Trump’s America wasn’t born overnight. Like Trump, it’s been around for decades, and it never really hid.
The Satanic Trinity
For now, let’s ignore the big cultural issues. Plenty of people do. The story of the failing American middle-class comes down to the Satanic Trinity: housing, healthcare, and education costs. No one really gets to avoid what’s happening on these fronts. They affect everyone. So, we’ll talk about all three.
Healthcare costs are spiraling for a simple reason: people want not to be in pain, not to die before their time, and not to inflict sadness and misery on people who depend on them. We have this fiction in mind of efficient markets where fair prices are discovered based on abstract principles: supply (how hard is it to make widgets?) and demand (what value can people extract from widgets?). Often, this works. In many cases, markets are the best solution to the pricing problem.
Here’s an issue, though: in bad times, value becomes binary. What’s the value of water? If you’re fifteen minutes away from dying of thirst, it’s infinite. If you’re healthy and live in normal conditions, it’s practically free. I’d argue that this applies even to money itself. When people feel they have enough, they spend it without much thought. When money’s tight, they watch every cent.
For most commodities, including money itself, the marginal value is either nearly zero or nearly infinite; and, it’s never good to be in the latter situation.
What fuels the hospital-industrial complex? Fear, obviously. People who can afford it will pay whatever it costs not to die in pain of a tooth infection that leads to sepsis. It’s hard to put a number on not dying in the streets of a preventable illness. Moreover, it functions as a middle-class inheritance tax. The rich, who bequeath $10-million estates to their heirs, are largely unaffected by medical bills. Middle-class people who die with $250,000 to $2 million in net worth? Often, their finances are wiped out by end-of-life medical bills. Their kids are too deep in grief to care about money right then; so, that’s the best time for the hospital-industrial complex to strike.
The hospital-industrial complex is, financially, not very different from another, much older and more nakedly barbaric, wealth transfer from semi-rich old people to unscrupulous young people: witch hunting. I don’t believe for a second that educated people in the 17th century actually believed that these old women were hanging out with Satan in the forests of Massachusetts or Bavaria. Witch hunting existed not because everyone believed in that nonsense, but because it was so profitable for the hunter (and the church) to seize the wealth of a person who’d amassed significant money, but who lacked the vigor (and, in a time when a woman’s testimony was given little value, male gender) to defend it.
The medical-industrial complex exists for one reason: old people have money they can’t use and that they have neither the vigor nor reason to defend.
Let’s go to tuition next.
First, let’s admit that college education always had an economic purpose. High-minded ideals? Bullshit. We might wish it were otherwise, but less than 1 percent of people can afford to take four years off from the subtle, gray-beige oppression of economic life.
What differentiated colleges from trade schools is the obliquity of the approach to the individual economic problem. Trade schools provide knowledge that’s profitable now. So long as the trade stays strong, the tradesman is well-off. That’s always been true and it’s still true. There are probably more six-figure plumbers than six-figure art history professors. The issue is that no one can predict which trades will be strong, 20 years out. Trucking is a solid middle-class job that might be automated out of existence in a decade. So-called “blue-collar” jobs are commodity work and no one pretends otherwise. Wages are at the mercy of the market.
The selling point of a college degree is insurance against the vicissitudes of commodity values. Officer of a horse-carriage company, in 1902? Well, you might lose that job soon; but, thanks to your college degree, you have all the upper-middle-class skills necessary to run a car company.
We’re now at a point where there are so many college degrees, and the quality of graduated students is so variable, that college degrees bring very little. Largely, their job-winning purpose is to wash off the negative social signal of not having one.
To be fair in this assessment, the quality of education that’s available has probably never been higher. Just as a $5 bottle of wine today is superior to what Napoleon drank, someone who attends a no-name school and actually does the work will get a better education, in most ways, than someone who went to Harvard in 1980. The Internet has changed so much; it makes the smart, smarter, and the dumb, dumber. (That’s a topic for another time.) I’d even argue that the objective differences between colleges have shrunk– the difference in quality between the elite colleges and the next tier, which was never all that much, is one-third of what it used to be– but the social ramifications have spread out.
I work in the technology industry. In Silicon Valley, there are three schools that matter: Stanford, MIT, and Harvard. It has nothing to do with lay prestige (“Ivy League”) nor with the quality of the schools themselves. In venture-funded software, even Yale (or Princeton, or Dartmouth) is indistinguishable from the University of Michigan, which is indistinguishable from Northern Illinois University in De Kalb, which is indistinguishable from a community college, which is indistinguishable from nine weeks at a “code boot camp”. It’s not about the quality of the educational programs. It’s about venture capital and it’s about connections. If you want to raise a $2,000,000 seed round at 22, go to Stanford and not Yale; in the tech industry, Yale is Siberia.
These prejudices vary by industry. Consider traditional publishing. (I mean, don’t consider it as a career, unless your uncle is a power agent; but let’s examine it.) Yale and Princeton have incredible pull, whereas Stanford is openly mocked; MIT might get you a 6-figure advance, but only if you’re writing science fiction. If you want the New York Times to review your memoir, I Took Classes, then go to Yale and not Stanford; in trade publishing, Stanford is Siberia.
I’m sure that Stanford’s English program is excellent… and, besides, one doesn’t become a great writer by taking classes, but by reading and writing, which you can do anywhere. I’m sure that Yale’s undergraduate computer science is very good. You can get a rock-solid education at a state flagship college, a top-50 or so liberal arts college, et cetera. If you have the work ethic, you don’t necessarily need to go to college; there’s plenty of excellent material online. It’s probably no surprise that the tuition bubble is about that. It’s about connections. It’s about extracting personal benefit from the low-level corruption that exists in almost any society.
So why are tuitions rising? Why do people pay $65,000 per year to go to college, in addition to hundreds of thousands spent on elite boarding schools, private admissions consultants, and donations? It’s not like connections “weren’t a thing” back in the 1980s. Small-scale corruption has always existed and always will. So what changed? Why is there a market for private college admissions counseling, to the tune of $50,000 per head?
It’s the panic purchase of credibility and connections, as the U.S. middle class dies.
We’ve covered two items of the Satanic Trinity: healthcare and tuition.
I suppose that there is some good news in both. With healthcare, the costs are usually exacted when we have no personal use for the money. There are exceptions. People get cancer at 47 (whoops!) but it’s rare. Just as most people in Vichy France didn’t die in camps, after all; the majority of people won’t suffer egregiously from the U.S. medical-industrial complex and its extortive billing practices. Relax, you’ll be fine… well, 95 percent of you.
People live in terror that if they don’t toe the line and stay employed and insured, they’ll be left to die on a hospital doorstep. That happens but, statistically, it’s far more likely that a person will suffer the opposite: being kept alive longer than, if they had their full faculties aforethought, they would want.
What about tuition? I suppose we can take solace in the fact that the spending is self-limiting to a degree. Colleges will still admit low- and middle-income students– it helps the rich feel better about themselves, and they can self-segregate by social class once behind the gates– and offer price reductions (to what people can actually just-barely afford) under the guise of “financial aid”. The prices will be calibrated to drain, but not break, the parents.
Behind healthcare billing, the soothing whisper is, “You don’t need this; you’re going to die soon.” Behind tuition, it’s, “Relax, this is what a good parent does; pay out, today, and your kids will be set for life.”
What about housing? Housing is… much more complex.
If you took an unweighted geographic average, you’d find that houses in the U.S. are reasonably priced. Cheap, even. There isn’t even anything wrong, either, with most of the places where one can find affordable houses. I’d rather live in the mountains of North Carolina than some overpriced, depressing suburb in the Bay Area that’s three hours (accounting for traffic) from anything worth looking at (i.e. the parts of California that are actually beautiful). Houses are only obnoxiously expensive… where there are jobs.
Oops. This country wasn’t supposed to have a Jobless Interior.
This is where it gets super touchy. It brings in gender and race and politics– why do people in so-called “red” versus “blue” states seem to live in different realities?– and there’s no easy solution to it. I’m about to get into trouble here.
Let’s take a break. We’ll talk about housing in the next installment.