The Best Country in the World?

There are many ways to rank countries, including by income per head, infant mortality, educational achievement, stability of families and marriages, openness of social mobility, quality of government, and so on.

Americans are accustomed to viewing the United States as the world leader in most respects. In the popular mind, we are the richest large country, the freest, the one with the most opportunity, the best public education, the best medical care, the one with the largest and best-off middle class. We may have a lot of inequality, but that is the natural result of individual freedom in the capitalist system, and thus the result of a system in which everyone has the best chance to do well overall.

Yet two publications this week give reason to pause and ask Americans (and those who want to migrate here) if all this remains true. Michael Porter’s new Social Progress Index ranks the U.S. as 16th in the world on a broad measure of social well being, including access to knowledge, health, clean air and water, opportunity, etc. Even on basic after-tax real income, America’s middle class has been losing ground compared to other industrialized nations.  According to a story in the New York Times yesterday, the middle classes of almost all other countries (Germany being the main exception) have enjoyed much greater gains in income than Americans since 1980.   Indeed, for the lower 40% of Americans, comparable income groups in many other countries are now equal to or even higher than in the U.S. in real after-tax incomes.  In the middle (fourth quintile), the U.S. still has a modest lead, but it is shrinking fast.  It is only for the top 20% of US earners, and especially for the top 5%, that incomes in the U.S. remain  much higher and deserve the envy of the world.

Another way to put this is that in 1980, the average income at almost any point in the U.S. income distribution (excepting only the bottom 5%) was about double the real income of other industrialized countries for the same point in their income distribution (for the bottom 5% it was about equal).  But by 2010, this was only true of the top 5% of US earners.  For all other groups, the U.S. income advantage has been reduced, sometimes substantially, and for the bottom 40% the advantage has virtually disappeared.

We need to be asking why this has happened.  But one answer leaps out from the data.  That is the lack of investment in America’s younger generation.  The top of America’s income distribution is dominated (silicon valley whizzes aside) by the generation raised in the 1960s — the baby boomers.  This generation benefitted from extensive investment in public education, from K-12 through universities.  For this generation, raised to compete under the scare from Sputnik that the U.S. was falling behind in the space race and other knowledge area, schooling was by far the best in the world.  This generation has had much higher educational achievement, including college completion, than its counterparts in other countries, even the wealthiest.  America’s vast expansion of colleges and well-funded outstanding public universities produced the world’s best-educated and most productive generation.

By contrast, the 20-30 year olds in America today lag behind their counterparts in educational attainments.  America’s elite and richly-endowed private Universities may still be the best in the world, but the rest of America’s university system, especially the state colleges and universities, have become poorly funded, underperforming institutions that do a poor job educating people, with amazingly high drop-out rates and low levels of skills for most graduates.  By comparison, the state universities of European and other rich countries may not shine as brightly at the top, but they do a much better job of instilling education across the board for the average college student.   And the with cost of American public education having skyrocketed (not due to higher faculty salaries, but due to increased administrative, physical plant, and accessory function costs), college is less accessible to most Americans today than it was forty years ago.

So it is not surprising that other countries have caught up, and may soon surpass us, in the incomes of average earners.  America’s top echelon — the elite universities, their graduates, and the top earners in the country — still lead the world.  But is that really as wonderful an achievement if the rest of the country falls behind?

Of course, to some degree this catching up is necessary and desirable.  America had such a huge lead over other countries at the end of World War II, that it is no wonder that the baby boomers who grew up afterwards should have an edge on their counterparts elsewhere.  We would expect the generations in Europe growing up after 1980, when the war damage and trauma had finally healed, would do much better than their parents and begin to close the gap with America.

Yet what is distressing is that for the 40% of Americans in the lower portion of the income distribution, average after-tax real income has nearly flat-lined since 1980, while the rest of the world has enjoyed strong growth.    Now for business and political leaders, it may be that this does not matter.  If the elites can lead the way, and the grunt work be done by robots and foreign labor, at a much lower cost than paying lower middle-class Americans to do that work, what does it matter?

It matters in terms of whether we are all one country, connected to each other, or a set of separate classes, living in separate neighborhoods, going to wholly different schools, homes, vacation places, and workplaces, as Charles Murray claims we have become.   After all, the U.S.’s ranking of 16th on social progress is largely due to huge shortfalls in health and education among the lower portion of the income scale.  If these people matter, and America’s average or overall well-being matters (not just that of the top 5%), then it is imperative that our country does a better job of investing in the young, and creating better health and opportunities for the lower half of the income distribution as well.

So this is America today.  To the extent that we lead the world, we are doing so on the backs of the generation raised with a huge advantage in the 1950s and 1960s; and on the accomplishments of our top 5% in income and achievement.   Will that be enough to preserve the America we have come to value in the last half-century?   Or will we continue to do as we have done since 1980 — cherish the best and forget the rest?

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About jackgoldstone

Hazel Professor of Public Policy at George Mason University
This entry was posted in The Global Economy, U.S. Politics. Bookmark the permalink.

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