More on the intergenerational contract

The greatest generation was pretty great, but my post on intergenerational transfers may have given them a little too much credit relative to voters of the last three decades or so. My colleague Bob Reich points in an email to

…one big reason why middle-class Californians began thinking more about themselves than posterity starting in the late 1970s: Their real incomes started to flatten. In the thirty years before that – when their parents invested in California’s education system and infrastructure – the median wage tracked productivity gains. The typical family grew so much better off it could afford to be generous. But then the median wage flattened even as productivity gains continued. Public-spiritedness is harder to inspire among people who feel they’re losing ground.

How did the few people so rich that they really don’t need much from government – maybe a Coast Guard to pick them off their yachts in case of trouble – contrive to get an exploding share of the value created by everyone’s labor since 1980? This is an important political question, not to mention how to fix it. Letting their federal taxes go back up to where they were in the very prosperous Clinton years wouldn’t hurt.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

13 thoughts on “More on the intergenerational contract”

  1. Joseph Mangan

    Your comment is awaiting moderation.

    August 25, 2010, 2:04 am · Reply

    Heed Professor Michael O’Hare’s opinion and advice, as they are honest and highly accurate.

    Please act now to convince our fellow american citizens of the blind and misguided error of their ways. I have failed spectacularly in my own efforts, and now no longer live in the country which I love, and swear my allegiance to.

    I am a Republican, a conservative, a believer in limited government, and a parent to this current generation now entering college, and I have much to regret.

    I lived in the “silicon valley” of California from 1979 – 1984 and again from 1988 – 1993.

    Upon my first arrival, my first year of high school, I was in for a terrible shock, to find having left a first world schooling to arrive in a 2nd world dilapidated school system.

    Prop 103, and the likewise self centered legislation were the cause of this precipitous decline.

    Yes, we were indeed blinded by charismatic personalities such as Ronald Reagan. I believe in hard work, and looking out for others less fortunate, and investing in my community.

    I am proud of my country, proud to be an american citizen, proud of the majority of its hard working and deeply caring people. I however, am revolted by the state and federal governments of the past 30 years.

    A government that largely reflects the will of a small number (however a majority loyal voting group) blind and ignorant, shrill, largely self centered and mean spirited people. These are members of my own political party, and largely conservatives in the Democratic Party.

    I have been very fortunate to travel widely across the globe for business purposes. I have been in nearly all of the “great cities” of the world.

    I was shocked and surprised to find several countries with far better quality of life than that which I found in the U.S., thus began my “great awakening education” as to the cause of the ills of our great nation. I looked in the mirror and found myself to blame. I spent the next 3 years attempting to convince ANY of my fellow (majority voting) U.S. citizens in the error of their ways. Having spectacularly failed to do so, I packed up our family and moved to a new country.

    I left the U.S. 8 years ago, with my wife and 3 children, to move to Vienna, Austria (ranked for 2 years in a row as the best city in the world).

    The tax rate for the average middle class citizen here is 50 %. It is the closest thing to heaven, one can find on this earth. I do not mind at all, paying far more in taxes, as I can clearly see the benefits of doing so.

    As an american, as a conservative republican, I suffer a continuing Cognitive Dissonance, unable to resolve the seemingly incompatible simultaneous support of aspects of the SPÖ, the Social Party of Austria. The evil socialism, which as americans we were raised to believe, was so thoroughly “UN-American”, and threatened america. I have seen the centrist socialist ideals succeed here in Austria, where right wing conservatism has clearly failed america.

    Austria also has a small shrill, bigoted, and self centered group of people like those who ultimately dethroned america’s prosperity. They are known as the FPÖ, the so called “freedom party of Austria”, and their brethren the BZÖ, and their sympathizers in the ÖVP. However these people are but a small (however growing) minority of the voting group.

    Left unchallenged, they shall ultimately destroy the Austria they claim to want to preserve. I do my best to educate all Austrians that these persons are misguided, and show them the United States as proof of the fate which certainly awaits them, if they remain on their self destructive course of politics.

    Vienna is a social democratic city. As an American, I find it largely balanced. People have good jobs, guaranteed high quality healthcare (socialized medicine), and provide nearly free (300 euros per semester) higher education. The society takes care of its most needy of citizens.

    Yes they have entirely too much bureaucracy, and yes the politicians are highly paid (far more than in the US), however surprisingly as a result they are largely honest and uncorrupted persons.

    Austria has an unemployment rate of 4.7 percent vs 9.6 for the US.

    http://www.newsweek.com/2010/08/15/interactive-in

    Please act now to restore america’s greatness, pride, and respect in the world.

    Sincerely

    Joseph Mangan

  2. I am a Republican, a conservative, a believer in limited government

    I'm always very curious when reading letters such as this. Why do you say "I am", rather than "I was"? Would you reflexively vote Republican, if living in the U.S. today? I guess everyone is a believer in limited government, but you don't sound much like you believe in the importance of small government anymore.

  3. Allen,

    I suspect Joseph says "I am" rather than "I was" because he is an ex-patriate American. He probably still votes by absentee ballot. I think the more interesting question is why is Joseph still a Republican? If as he claims (and I agree) right wing conservatism has ruined America, why is he continuing to support that effort?

    Myself, I'd say that it's right wing authoritarianism (RWA) that threatens to ruin America, but RWA is heavily concentrated in the Grand Old Party. May it soon become the Grand Extinct Party.

  4. To my mind the big question here is WHY were things better mid-century than now?

    Bob Reich is one who argues that our social investment led to improving productivity and rising standards of living. Krugman is another. I like this theory, but fear it isn't true. I worry that it was really just 'loot' from winning WWII (not that we took the money by force, only that we gained huge market share and weren't busy digging out of the rubble). We enjoyed disproportionate prosperity, and the reality of communications and transportation meant Americans had privileged access to the goodies (no off-shoring of jobs).

    Nowadays, we're all just competing in this vast global labor pool minus any labor, safety or environmental standards. Average Americans have been demoted from 'associate members' of the American Empire, to generic members of the global labor pool. The "Roman Citizenry" has been restricted from everybody who happens to live in America (an admittedly arbitrary and unfair rule) to People with Money (no longer discriminating by location, but instead by financial resources).

    Capital has gone global, but labor and environmental movements are still relatively parochial. Hence capital succeeds readily in dividing and conquering the rest of us. The depressing thing is that this has been going on my entire life, and may well need to continue for many more years (decades?) before things improve.

  5. Very thoughtful of many of you. I agree with Seth, and this applies to geopolitics too. We will never regain the position we held in the post war world: it was artificial and unsustainable. And I would additionally like to point out the cleavage between the world of finance and the real economy. Money is supposed to be the servant and has become the master. Many of the economic changes that have made such an astounding amount of notional wealth for some, are like wrecking balls to the real economy. In the money economy it can be worth the effort to ship steel from overseas due to financial manipulation and low transit costs measured in money. However it still takes the same effort and energy to make the steel given the same technology measured in energy and labor. World economies are based on very flawed gamesmanship and deceit, and one day the bill will come due as it did for the Soviet bloc. We are more and more becoming like Columbia and El Salvador, when Austria, Sweden, and other places are much better models. But why should the money rich care? I ask them do you want to live in a society where you have to hire armed guards and wall off your community to have a sense of security? Or would you rather pay that same amount instead to make your society open and peaceful. Which is better for your children? Armed and Guarded or free and open.

  6. Thank you President Reagan. He put education on the back burner and we have paid the price.

  7. I'm afraid I also worry that this is less about government priorities and more about structural changes that have tilted the balance of wealth increasingly toward a smaller group. This is not an area I'm comfortable in, but I imagine today's economy is just more difficult to make a buck in. There's a lot of competition from other countries. The type of work is increasingly not the kind of stable, unionizable, pensionizable employment. The opportunity to take part in American success seems ever more of a crap shoot.

    This is the kind of situation in which government help is all the more important, yet is violently opposed by so many. Maybe large tax increases won't do much to change the structural problems, but at least it will certainly provide the infrastructure, education, and safety net that is as important as ever.

  8. I once heard Joseph Stiglitz talk about the disconnect between rising productivity and flat wages in the past four decades, but I have never read a clear and readable account of this phenomenon. If true, it is huge, and ought to be so commonly talked about that it would be better known than the BP oil spill.

    Are there any suggestions for a book on this subject? Written by Reich, Kurgman, Stiglitz, or anyone else? A vague impression built on a half paragraph from an e-mail is not even a beginning. Where has this been written about?

  9. I'm struck by how many people overlook that, at its core, wealth has a physical basis. The great wealth of the United States is, more than any other single factor, the result of our fabulous endowment of natural resources, especially cheap energy. We were the Saudi Arabia of the world before the Saudis were, and they were able to follow us as the swing producer (able to set prices on the world market) only after we peaked on oil extraction rates in 1970-71. Which, not at all coincidentally, is when our economic troubles really began, as we shifted from an economy based on ever-cheaper energy to one struggling to adapt to ever-more expensive energy.

    Ultimately, look at any nation's wealth and you have a good measure of how successful it has been at obtaining access to cheap energy.

    Now that we have squandered our enormous resources base and we have something on the order of 2% of the world's oil reserves (while consuming roughly 25% of daily usage globally), we're finding it hard to manage. Whodda thunkit?

  10. To Joseph Mangan: Now I know where the smart, responsible Republicans have gone–Austria–to pay 50 percent in taxes. (You certainly sound like a Democrat of my father's stripe….) We're left with the freakish Limbaugh-listening, Beck-watching, Palin-voting Tea Partiers. No wonder our national debate is now held in the toilet. (The other smart, responsible, civic-minded Republicans–like my mother–converted during Clinton's second-term election….) Alas and alack, now the sky is falling….

  11. Late to the party, but while "Letting their federal taxes go back up to where they were in the very prosperous Clinton years wouldn’t hurt" is true, it doesn't go far enough. Taxes probably were too high pre-Reagan, but they've been too low ever since (even with the slight increases under GHW Bush and Clinton.)

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