Is the system failing when hard work, education not enough?
Q. Can you describe the social contract? What does it mean?
It’s the idea that because we have a free-market economy, everyone up and down the economic ladder is where they are because [that’s where] they want to be. Simply put, if people don't want to be lower down, they can move up the social ladder. We have mechanisms for that. I call it a social contract that says, “Hey, if you're not happy with where you are on the economic or social ladder, then here are steps that you can take to move up.”
Then, I wondered if that was actually true: Is it true that people are positioned where they are simply because that's where they want to be? And if they don't want to be there, how did they end up there?
It's just easy to dismiss people and say, “Look, you didn't engage in the right activities. You didn't try to educate yourself. You didn't try to become an entrepreneur. You didn't try to do other things that I did. ... You must be where you want to be, because you didn't do these activities.”
Then I looked around, and I saw that there were actually two groups. There was another group that said, “Yes, what you're describing might be correct for that group of people [who didn’t try], but that's not me. I tried to educate myself. I tried to become an entrepreneur. I did the things that were supposed to let me get ahead. … I'm not in the group with those people who you might be able to easily dismiss.”
Given there is this second group that engaged in the right activities without advancing, the question becomes, “Is something wrong with the system itself?”
Q. What motivated you to write about the social contract?
About 20 years ago, I was working with some international political science scholars. They were looking at international and transnational terrorism. And they said, “We're finding that terrorism is really coming from middle-income countries, not those at the very bottom because they're too busy just trying to exist, and not those at the very top because they have effective means.”
I started looking at not just the numbers of people in poverty or lower on the economic ladder, but [at] the composition. And by composition, I mean those who were occupying the lower rungs of the economic ladder. Those who were in poverty were increasingly people who actually had college degrees.
I said, “Well, this can't be right. The thing that was supposed to have kept you out of poverty was that you had received some type of economic training.” Sure enough, as I tracked this thing, I saw that the number of people didn't change; the composition of people started changing.
Those people rightly said, “I don't deserve to be here. I did the things that society told me to do, but yet here I am, mixed in with people who didn't do what society told them to do.” When that number reached a tipping point, that's when we saw protests. It was then when there were more and more people occupying those lower rungs who had been educated. They had bought into what I call the social contract.
Those people struck out. That's what led me to start thinking about this whole idea of, “If society makes a promise to someone, and it doesn’t keep that promise, what happens to them?”
They build resentment. They reach a tipping point. They coalesce around an idea, and they voice their displeasure.
Q. How does this failure relate to the U.S.?
I look back [and] see protests, specifically protests like the Occupy Wall Street movement, specifically protests like the Tea Party movement. Those were people voicing their frustrations with a system that they felt had failed them.
There's a quote from Herman Cain, a former businessman who ran for president. He said, “Don't blame the banks, don't blame Wall Street if you are not rich and if you don't have a job and you don’t have a bunch of money. Blame yourself.” That perfectly encapsulated the feeling of those who said the system here is perfect. If you didn't get ahead, it's your fault.
The people who were protesting—the Tea Party people and the Occupy people—were saying, “I bought a house, which you said was the cornerstone of building wealth. But how was I to know that this thing called the Great Recession was about to hit?
“I didn't have anything to do with that. I bought a home to try and build wealth and equity, just as you told me to do, yet now I'm in foreclosure. I'm in bankruptcy. I'm in worse shape than I was before I bought into what you said was the American dream and the way to move up.”
Q. In what other ways are promises of advancement not kept?
If we're going to say that education is a route to a higher standing on the economic and social ladder, then it has to be true that education has to work across the board.
But we found that the quality of the education you receive is dictated by the ZIP code in which you live. It is possible to get all the education available locally and still find yourself uncompetitive in a job market. We were not told, “Get your education, but make sure you get it in the right area. And if you don't live in the right area, move to the right area.” Those parts were never explained, and those parts weren't written into the blueprint of how education was supposed to work.
We didn't tell people that to be an entrepreneur, you need access to credit markets.
I'll just give you one more example. We talk about health care. We say, “Look, if you can secure yourself stable employment, that will come with health insurance [and] that will come with health care.”
If we know anything, it is that employers want workers who are healthy. Workers who are healthy are easy to train and more likely to show up at work. But it is amazing that if we look in the American lexicon, we find that we have a term in the U.S. called medical bankruptcy—that by having one medical emergency now, not only can you lose your job, you can lose your wealth, you can lose your home and you can end up homeless.
And here's the kicker: That happens with insurance. Find a job but be careful that you don't get too sick and need to actually use that insurance because it could be the case that you'll end up worse off than you were before.
Q. Why are these shortcomings allowed to persist?
People aren’t willing to recognize that there is a problem. [It’s as] if I say to you, “The problem isn't the system; the problem is the users of the system.” The system works perfectly, yet the users don't know how to properly use this well-working system.
My argument would be that in any other business context, if 11–15 percent of the users of your product don't know how to properly use it—even if it's their fault—you'd have calls for immediate recall or a redesign. You can’t have any product on the market where you would accept 11–15 percent user error. If we had 11–15 percent of planes falling out of the air, we wouldn’t say it is the fault of those pilots, they should have known how to fly better. We still would say there needs to be some type of redesign.
We need to come up with some type of solution. Let's go back to first principles and let's think about the original intent. And then let's see if we can't redesign the blueprints so that they work. What was the whole point of education? The whole point of education was to have a more informed citizenry in that they were more likely to engage in a democracy, and they were more productive.
That's really where we care. We care about people being more productive. It would behoove us, if we're trying to grow this economic system, to engage in [our first] principles and try to get our blueprints on everything from education to entrepreneurship to health to military service, to you name it, to work as intended.
You can't reasonably say that 45–60 million [people at the low end of the economy] are all just lazy and content. That number is too big. It has to be the case that some of them have tried to use the tools you gave them, and it didn't work for them.
Here's the problem with that. If they try to use the tools and it didn't work for them, but some other people try to use the tools and it worked for them, then you no longer have a ladder [to upward mobility].
What you actually have is a lottery.
Q. How receptive have people been to your message?
People have been highly receptive because they've had these ideas running around in their heads. They felt that there might not have been something wrong with them, but there had been something more systemic.
The book says something about things that people feel. I look around every day, and I see some people not progressing as fast as they should have or not progressing at all.
I grew up really poor. Sometimes my mother would have as many as three jobs. She'd work, get off, go to another job, work and get off and go to another job. And her story to me was always the same. She'd say, “Look, you just work hard, and you're going to get ahead.”
And we did [work hard]. And we stayed mostly poor for all of my childhood. If it were true that working hard was all it took to get ahead, then my mother should have been a millionaire. In fact, given how hard my mother worked, she should have been a billionaire.
Those are the same ideas that others who are reading the book are saying, “That's exactly right. I know people who are working way harder than their station, their social and economic station. It can't be the case that they aren't working hard, and it can't be the case that just working hard is enough.”
If people aren't moving ahead, it can't be the case that everyone on the lower rungs of the economic ladder must just be lazy.
This is an edited and abridged version of a conversation available on the Southwest Economy Podcast.