Misunderstanding Poverty: a Review of ‘Second Class’

I don't quite buy the facile explanation that the Republican Party has become the party of disaffected blue-collar workers, while the Democratic Party has become the party of college-educated elites. To be sure, there are fascinating tectonic shifts in the American political landscape, and today's parties are not the parties of 40 years ago. As the shifts settle, the parties are redefining themselves, and the country is increasingly divided. But I would not assert, as journalist Batya Ungar-Sargon does in her recent book, Second Class, that "the truth is that we have one party in this country that represents corporations and the Chamber of Commerce and another that represents the educated, credentialed elite and the dependent poor, and no party willing to assume a working class agenda." The financial industry routinely gives more to the Democratic Party; that one fact puts an end to such simplistic thinking. Likewise, the dependent poor are, if anything, harmed by government policies. So it's not that simple. But Ungar-Sargon concludes, with that sweeping and satisfying assertion, a book that is laden with clichés and sloppy reasoning.

The main argument in the book is contained in its subtitle: "How the elites betrayed America's working men and women." America's working class has been left behind by structural changes in the economy, and is barely scraping by, betrayed by policies deliberately designed to concentrate wealth at the top. Among the bogeymen pilloried by Ungar-Sargon, we count: the drop in US manufacturing; the rise in the service industry; "shipping" of jobs overseas; mass immigration, especially illegal; the two-income trap; increasingly expensive college as a gatekeeper to socioeconomic mobility; the demise of unions; the new trend of college-educated men and women inter-marrying; the ballooning price of real estate; benefits cliffs; and zoning.

America does have a real problem. But it's hard to discern that problem, its causes, or its solutions, in the tangled mess of facile sophistry and sloppy methodology that is this book.

Ungar-Sargon is a journalist, and engages in the kind of journalistic fluff that fills pages. It may grab the attention of half-awake readers, skimming Newsweek on their morning commute, but it doesn't have a place in what purports to be a serious book. One of the workers Ungar-Sargon interviews is, we learn, "forty-six, handsome, and lean with a permanent squint, a stylish flair, and a sonorous, gravelly voice." He has "the benevolent raffishness of a pirate." For lunch, he packs "butternut squash and lentil soup in a thermos, kippers, an energy bar, a flask of cold-brewed coffee heated on the stove, and three bottles of water." Ungar-Sargon's methodology has promise: instead of merely looking at statistics that mask human stories, she interviews "members of the American working class who are fighting tooth and nail to survive." It isn't clear just how many interviewees there are, or how their stories really fit into the statistics she presents. Ungar-Sargon is evidently unaware of the methodology of analytic narratives (see, the work of Robert Bates, Avner Greif et al., who carefully combine narratives with the rigor of rational choice theory). She tends to use individual stories, out of context, as representative. At one point, she even says of real research by sociologists and economists: "I was surprised when my own research did not find such a neat picture."

Ungar-Sargon demonstrates a deep misunderstanding of basic economic theory. Throughout the book, she seems to praise policies that have long ago been debunked as laden with unintended consequences. I say she seems to do so, because sometimes it's not quite clear if she's editorializing through her interviewees. She appears to love unions - which have a long track record of being as good for the few insiders as they are awful to the many outsiders. Minimum wages are helpful to the workers who garner them, but damaging to those who are excluded, often permanently, from the labor market as a result. Ungar-Sargon rightly recognizes welfare cliffs as problematic (many workers often lose net income from increased wages, as they lose their welfare benefits past a certain threshold), but she would tinker with an inherently flawed system, rather than ditching it entirely in favor of civil society. Tariffs and migratory restrictions may indeed protect some domestic workers, but at great expense to others, along with deadweight losses, zombie industries, and higher prices for all.

Finally, the US does not have the socioeconomic mobility it could have. But the country is not as static as Ungar-Sargon paints it: over the past 50 years, the share of national income earned by the lowest four quartiles has fallen slightly (by .7 percent to 2.6 percent) - but national income has tripled. This means that the bottom 80 percent now earn a slightly smaller piece of a significantly larger pie. The increased income - from innovation, trade, immigration, globalization - hides another key phenomenon: the drop in the consumption gap. The late great economist Steve Horwitz explained that "poor Americans today live better, by…measures [of consumption] than did their middle-class counterparts in the 1970s." Ungar-Sargon flippantly swats away the fact of lower prices. She also comes dangerously close to Marxist doctrine when she refers to static classes, a "caste system" and class consciousness (apparently, educated Americans are "incapable of imagining themselves facing the desperation [faced by immigrants])."

Ungar-Sargon is sloppy and unqualified to write a serious book on economics. This doesn't mean, of course, that there isn't a problem. Unfortunately, the errors of omission in this book are as damning as the errors of commission just listed. There has indeed been concentration of wealth in the US over the past 50 years. And it is indeed harder to get by and achieve stability, especially for those in the lower quintiles of income. Prices have fallen significantly on consumer goods over the past 50 years (Horwitz estimated that a basic bundle of household appliances cost the average worker 885.6 hours of work in 1959, versus 170.4 hours of work in 2013 - and this does not include innovation and rises in quality). But three key sectors are glaring exceptions to this rule: healthcare, housing, and education. Ungar-Sargon discusses the importance of these, but lacks the economic acumen to recognize that these three sectors are also among the most regulated and subsidized, hence the higher prices. She also sidesteps the disastrous drop in quality of high school education - a result of union power and federal meddling, which means that a high school degree often no longer offers the skills to make a good living, as it did 50 years ago. Subsidies to higher education have pushed up prices and driven down quality. Regulations have increased over the past 50 years (in 1970, the Federal Register contained about 20,000 pages; today, it's close to 90,000). And those regulations are typically regressive. Ungar-Sargon, in her economic ignorance, longs for more regulation, to protect workers - without knowing that it is the lowest earners who will suffer most from them. Civil society (private charities, family, fraternal organizations) have been crowded out by government welfare programs that are laden with Public Choice problems and unintended consequences - but Ungar-Sargon barely mentions civil society, focusing instead on more visible government programs, and hoping to rearrange the deck chairs on a sinking Titanic.

Overall, the US is suffering from cronyism, or political capitalism. Under this system, political activity is increasingly rewarded over economic activity, as businesses and politicians increase favors. Total government spending (federal, with state and local) has increased from about 30 percent of GDP in 1970 to 40 percent today; if we add 10 percent of GDP spent on regulatory compliance, this means about half of the US economy is controlled by governments rather than markets, by bureaucrats rather than entrepreneurs. It is no coincidence that three of the five richest counties in the US (and nine of the top 20) are located in the Washington, DC area - an area with little native industry, beyond spewing regulatory externalities. There is plenty of self-serving political capture by the elites. Alas, much of this destructive activity takes place under the cover of helping others, in a classic Baptists and Bootleggers story. With the notable exception of axing zoning regulations (which harm the poorest of Americans), Ungar-Sargon falls for this classic trap. This mediocre book is an ignorant plea for policies that would hurt the most vulnerable Americans.

Frédéric Bastiat famously warned against economic sophisms, the facile myths around free trade and economic policy. He explained "the entire difference between a bad and a good economist…: a bad one relies on the visible effect while the good one takes account both of the effect one can see and of those one must foresee." Alas, Ungar-Sargon is not even a bad economist. She would do well to read the basics; "The Broken Window" and "Trade Restrictions" would be good places to start.

Shockingly, for someone who engages in such sloppy research and jumps to such counter-productive conclusions, Ungar-Sargon does have a doctorate - a PhD in English from Berkeley, with a dissertation on "Coercive Pleasures: The Force and Form of the Novel 1719-1740." The abstract begins as follows:

Coercive Pleasures argues that the early novel in Britain mobilizes scenarios of rape, colonization, cannibalism, and infection, in order to model a phenomenology of reading in which the pleasures of submission to the work of fiction - figured as analogous to these other coercions - reveals the reader's autonomy as itself a fiction. This is a project about the novel but also about the way in which literary forms mediate political models of subjectivity. Literary histories of the novel tend to relate its "rise" to the emergence of a liberal subject whose truth resides in her interior, autonomous and private self. I propose instead that privacy and autonomy are the price rather than the payoff of fiction. With its depiction of invasive and coercive content such as rape, colonialism, cannibalism, and infection, and its self-conscious deployment of forms that coerce absorbed reading, the novel reveals the reader's consent to read to be part of a structure that infracts both readers' and characters' autonomy, producing a particularly modern pleasure.

The economist Murray Rothbard had a stern warning for journalists and others who dive unprepared into economics: "It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

It is especially irresponsible when ignorant but superficially appealing proposals would lead to more poverty and despair.