American Capitalism Can No Longer Afford to Let Workers Retire in Dignity

Get a job! Photo: John Moore/Getty Images

The Second World War, and the extraordinary economic growth that followed it, birthed an American middle class with a recurring dream: that all who were willing to work hard and “play by the rules” could secure a living wage, affordable housing, quality health care, good schools for their children, and a dignified retirement.

This dream was never fully realized. Most African-Americans — and no small number of impoverished whites — were never a party to this “new deal.” Nevertheless, for three decades after the Allies’ triumph, the median American worker enjoyed a higher level of economic security than at any time before or since. During that period, the middle class’s sense of “entitlement” to high wages and a strong safety net was celebrated, not denigrated. As of 1969, the idea that the U.S. government owed its citizens a modicum of unconditional, material well-being was so mainstream, a Republican White House seriously considered guaranteeing all Americans a minimum, annual income equivalent to $10,000 in today’s money.

But in the 1970s, the material basis of the postwar bargain unraveled. Absent high growth and American economic dominance, ever-rising profits and capital gains were incompatible with ever-rising wages and welfare benefits. The stagflation crisis gave skeptics of New Deal liberalism an opening — and corporate America pushed them right through it. Following the Reagan revolution, labor’s share of productivity gains collapsed; the defined-benefit pension went extinct; top marginal tax rates took a nosedive; wages stagnated, while the costs of health care, higher education, and (in many markets) housing rose sharply.

Thus, for roughly four decades, the fundamental challenge facing American politicians has been to sustain a social bargain that the economic elite no longer bought into. Cheap foreign goods, deficit spending, easy credit, and ever-rising home prices were effective palliatives; but they didn’t cure the underlying ailment, and propping up demand with a housing boom fueled by loose lending standards proved to provide only a temporary high, with near-fatal side effects. Market utopians held out hope that global, financial liberalization would reproduce postwar growth rates and lift all boats; instead, it put working-class homeowners underwater.

Ultimately, the middle class’s expectations had to be lowered; “entitlements” became a synonym for unearned benefits instead of the opposite. Twenty-seven years after a Republican president contemplated giving all impoverished Americans a basic income, a Democratic one made it more difficult for the underclass to access any cash welfare benefits at all. A college diploma became a precondition for decent employment — while the cost of attaining one steadily rose.

The American public’s sense of entitlement to public pensions, however, proved more difficult to dispel. Bipartisan attempts to cut Social Security benefits faltered under Bill Clinton, George W. Bush, and Barack Obama.

And yet, it’s now clear that access to a decent retirement is rapidly contracting, anyway.

New research shows that the rate of bankruptcy among Americans over 65 has tripled since 1991, while that among 55-to-65-year-olds has also risen sharply. According to this new study from the Consumer Bankruptcy Project, the bankruptcy rate among Americans over 65 was 3.6 per 1,000 between February 2013 and November 2016 — up from 1.2 per 1,000 in 1991. Meanwhile, Americans over 65 now account for 12.2 percent of all bankruptcy filers, up from 2.1 percent in the early 1990s — an increase that far outstrips the growth in our nation’s elderly population in the interim.

Chart: The New York Times

The studies’ authors attribute this development to the government and corporations offloading “the risks associated with aging” onto elderly individuals. But this seems too narrow a diagnosis. It would be more accurate to say that the elderly’s rising bankruptcy rate is a product of the state and employers offloading the risks associated with being a laborer in a capitalist economy onto working-class individuals of all ages. Which is to say: The collapse of the more politically vulnerable aspects of the New Deal bargain has eroded its most durable pillars.

Asked to explain what led them to seek bankruptcy, three-fifths of elderly filers cited medical expenses; two-thirds, a drop in expected income; nearly three-quarters, unsustainable debts.

In its write-up of the study, the New York Times offers vital context for these explanations:

By 2013, the average Medicare beneficiary’s out-of-pocket spending on health care consumed 41 percent of the average Social Security check, according to Kaiser, which also estimated that the figure would rise.

More people are also entering their later years carrying debt. For many of them, at least some of the debt is a mortgage — roughly 41 percent in 2016, compared with 21 percent in 1989, according to an Urban Institute analysis.

And those who are carrying debt into retirement are carrying more than members of earlier generations, an analysis by the Employee Benefit Research Institute found … Older Americans’ finances are also being strained by the needs of those around them. A little more than a third of the older filers who answered the researchers’ questionnaire said that helping others, like children or older parents, had contributed to their seeking bankruptcy protection.

Chart: The New York Times

The stagnation of middle-class wages, combined with inflation in higher education and housing, is eating into Americans’ retirement security — both because these conditions make it harder for older Americans to save, and because it compels them to devote much of what they do save to aiding their (typically, even more economically disadvantaged) offspring. Many have speculated that the millennial generation’s massive student loan debts will create a retirement crisis in future decades; but they’re already contributing to one today. A significant number of elderly Americans filing for bankruptcy co-signed their children’s student loans.

All this presents a political opportunity for Democrats. Four decades of upward redistribution have shrunk the (always limited) constituency for the Republican economic agenda, by rendering Americans’ most basic, and least controversial, expectations of the public sector unsustainable: It is hard to argue that the problem is “too much government,” when some states’ public schools can’t keep their doors open five days a week, and many seniors must work multiple jobs to stay alive.

The Democratic Party has evinced some recognition of this reality. A decade ago, the typical “moderate” Democrat was a deficit hawk, eager to “save America from bankruptcy” through entitlement cuts. Now, the Conor Lambs and Danny O’Connors of the world are stalwart defenders of Medicare and Social Security.

But as the Consumer Bankruptcy Project’s report shows, the promise of those programs can’t be sustained by a rearguard defense of benefit levels alone: One cannot guarantee working Americans the right to a secure retirement without reviving the broader New Deal dispensation. Workers must be empowered to demand a higher share of corporate revenues; the state must reinvest more of the wealthy’s market-income into public goods. Expropriating yachts lifts all boats.

American Capitalism Is Forcing Seniors Into Bankruptcy