Book Reviews

That Greedy Upper-Middle Class

Will the top 20 percent be willing to forego some of their advantages so that others may rise? Tough one.

By Heather Boushey

Tagged EconomicsMiddle ClassRedistribution

Richard Reeves wants his readers to understand that it’s no accident income inequality is rising and the rich are pulling away from everyone else. In fact, he wants them to accept their fair share of the blame.

In a short book with a long title, Dream Hoarders: How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That Is a Problem, and What To Do About It, Reeves argues that “upper middle class” Americans are doing quite well, with incomes continuing to rise. But he also contends they’ve done something very selfish and unfair—they’re pulling the ladder up behind them. The United States, the nation that Ronald Reagan called “the shining city on the hill” and a place where anyone could grow up and make it up that ladder, now has a class system as rigid as that of Old Europe. In response, Reeves aims to show in Dream Hoarders how to recreate broad-based access to the American Dream. While I’m sympathetic to his aims, I think that there’s a stronger call to action than he envisions.

Reeves focuses on what he calls the “upper middle class” or the “favored fifth,” which he defines as the 20 percent of U.S. families with the highest incomes. That’s households earning at least $112,000 a year. There are compelling reasons to focus on the top 20 percent. This group has seen sharper increases in income than those with incomes in the bottom 80 percent. Data from economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman show that between 1980 and 2014, average national income per adult grew by 61 percent in the United States. Disaggregating the data, however, we see that over that 34-year period the top 20 percent saw their incomes rise by 101 percent per adult, while the remaining 80 percent saw a paltry 21 percent growth per adult, after adjusting for inflation.

Reeves’s frame makes for a sharp contrast—and quite intentionally so—with previous commentators and experts, notably Piketty, who have argued that the most important inequality trend is the growing divide between the top 1 percent and the rest of society. His focus on the top 20 percent stems from his belief that the problem isn’t income inequality per se, but rather class privilege. He argues that our nation is witnessing the emergence of rigid class distinctions and homes in on the advantages that upper middle-class families confer on their progeny. He marshals persuasive evidence to show how, from birth to college, children of upper middle-class parents have better access to the training needed to develop the kinds of skills and attributes rewarded in the labor market. This means that they are able to develop more of the kind of “merit” (his quotes) that is valued. What’s more, he believes that parents—and their kids, as they grow into adulthood—engage in unfair “opportunity hoarding,” limiting access to “merit” for the bottom 80 percent.

However, Reeve’s top 20 percent definition also has a number of drawbacks. In many cities, a family income of $112,000 a year cannot guarantee broad-based access to the American Dream, as he claims. Take Denver, for example, where according to 2014 data, that income puts a family at about the 75th percentile, or San Jose, where it takes an income of $178,000 a year for a household to crack the top 20 percent. Because of this, many in the top 20 percent aren’t the elite professionals Reeves writes about. Further, there are still some families in his “favored fifth” with dual-earners in solid middle-class jobs but without higher education—such as a line worker and a plumber—so I think we need a more fine-tuned definition of those who have the opportunity to “opportunity hoard.” To this end, in my own work, I define “professionals” as those in the top 20 percent where at least one person in the family has a college degree, a distinction that pulled 3.2 percent of “favored fifth” families back into the middle class.

 

Reeves’s background allows him to see the growing class divide in the United States with a clear eye. He’s British by birth but now lives in an “affluent neighborhood in Montgomery County, Maryland.” He fell in love with America’s fluidity and opportunity yet, as he tells it, he’s found himself ensconced in a system of class privilege more insidious than anything he’d seen growing up. To a greater extent than in the England he left behind, with its House of Lords and a reigning Queen, he sees the upper middle class in his adopted homeland as limiting the next generation of non-elites from reaching their full potential.

Reeves opens Dream Hoarders with a story to illustrate his point. In January 2015, President Barack Obama proposed eliminating a college savings program called “529s.” The 529 program, put in place in 2001, allows families to set money aside that grows tax-free so long as it’s used only for higher education expenses. The 529 program is quite generous, but it mostly benefits upper middle-class families. Since he doesn’t provide the statistics, I looked into it and found that a parent can save up to $70,000 a year—or $140,000 for a married couple—for each child. Thus, families with the means to save such substantial sums can and do save much more than what the typical (median) U.S. family earns, which was $56,516 in 2015.

In Reeves’s view, what happened next threatens everything that makes America great and fully illustrates the “favored fifth’s” privileges and how they protect them. President Obama proposed replacing this program with a tax credit that would benefit taxpayers of more modest means. The public outcry among highly educated elites was immediate. After complaints from a few members of Congress—particularly representing upper middle-class districts—the Administration backtracked; the 529 plans would not be touched. Reeves argues this furor over the proposed elimination of an educational privilege for the upper middle class demonstrates their chokehold on access to opportunity. He uses this story as a touchstone throughout the book to build his case that the members of the favored fifth are wedded to their privilege.

Reeves is optimistic, however, that the correct policy agenda can reverse this trend. His policy background shines through in the clarity of his seven-point agenda. The first four focus on equalizing human capital development—reducing unintended pregnancies by expanding access to better contraception, narrowing the parenting skills gap by investing in home visits by nurses, paying the best teachers to work in poor schools, and making college funding more equal. The remaining three are aimed at reducing opportunity hoarding—curbing exclusionary housing zones, widening the doors into postsecondary education, and opening up internships through increasing regulatory oversight, expanding student aid to interns, and changing the norms of how internships are allocated.

The policy agenda Reeves outlines is a good one, but I fear that it isn’t up to the task. While I applaud Reeves’s attention to the growing class divide, his focus on the 20 percent underestimates both the importance of the top 1 percent and the bottom 80 percent.

He cites Piketty’s point that in the United States, as of now, most income at the very top is derived from labor, not capital. This means that human capital—and access to the skills and merit that are required to access top jobs—is imperative for joining America’s upper middle class. Piketty, however, also makes another point, which is that patrimonial capitalism is a system whereby the incomes of the dead overtake the living as incomes accumulate into capital and then calcify into inheritances. Or, more pointedly: A Wall Street hedge fund manager may labor for his income, but his son’s trust fund requires no such labor. This process is self-reinforcing and will generate, Piketty predicts, “arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

The real calcification of privilege is happening at the very top. Between 1980 and 2014, incomes grew by 205 percent for the top 1 percent and 636 percent for the top 0.001 percent—over 10 times as much as the average for everyone, and six times the income of the top 20 percent. Although I do think that class matters, at the end of day, money matters more. Those below the 1 percent may be able to dominate pre-kindergarten admissions, but as wealth becomes ever-more concentrated, tremendous amounts of real power will congeal among those at the very top. If we do not address this inequality, then the process Reeves describes will only be magnified in the coming years. That will require a policy agenda focused more on addressing wealth inequality than inequality of access to merit, such as doing more to break up the intergenerational transfer of large wealth holdings.

But policymakers also need to do more for the bottom 80 percent than open doors to the upper middle class. First, opening doors to the top 20 percent still leaves 80 percent not in the club. It’s mathematically impossible for everyone to be in the favored fifth as that includes only one-in-five Americans. Therefore, in order to have people move into the top, some folks need to move out. Yet, as Reeves points out, this doesn’t happen: Once a family gets to the top, they tend to stay there. In fact, incomes are stickier for families closer to the top in the United States compared to many European counties, meaning that class is more enduring here than abroad. Therefore, Reeves directs his call to action to the favored fifth, telling his readers that they need to be “okay” with downward mobility.

However, Reeves doesn’t explore how unlikely the favored fifth are to acquiesce to downward mobility. Virtually all socioeconomic indicators are better for the top fifth than the bottom three-quarters, which means that higher rates of mortality, unemployment, divorce, or going without health insurance all become more commonplace if you slip from that perch. The “dream hoarding” Reeves attributes to selfishness or poor character may be more a reflection of justified fear of just how far the drop is down the income ladder, especially for those families on the cusp of the top fifth.

Without a broadly prosperous middle class, the path up is steep, but so is the path down. Readers may, therefore, want to pair Dream Hoarders with Barbara Ehrenreich’s classic, Fear of Falling, or Nan Mooney’s (Not) Keeping Up with Our Parents, books that lay out the demise of America’s middle class. While incomes have risen at the top, they’ve stagnated in the middle and fallen at the bottom, even as families put in more hours at work. Any policy agenda that deals with the consequences of growing income inequality needs to do more to address the factors that promote a stable middle class rather than to simply suggest that the solution is to allow more families to join the upper middle class. This means ensuring that the middle class has access to stable, good paying jobs where a family can afford a decent standard of living—a home in a safe neighborhood, good education for their children, and a secure retirement. To this end, I’d include more attention to early childhood education as the best step toward better mobility because of its capacity to be a game changer for millions of children, leveling the playing field when it matters most.

I also think Reeves could ask something more important of the favored fifth. His readers are not only the opportunity-hoarding upper middle class, they are also the people who are in the rooms where policy decisions are made. Consider another lesson from the 529 program: Ultimately, what mattered most was who was there when this program was torpedoed. It wasn’t a mass uprising that stopped the program’s elimination, it was a select few who also represent upper middle-class congressional districts. To quote a great man, Alexander Hamilton (as imagined by the playwright Lin-Manuel Miranda): to matter, “I’ve got to be in the room where it happens.”

In the Progressive and New Deal eras, low- and middle-income workers created a coalition with upper middle-class professionals to push toward a new vision of government. To be sure, there were some downsides, such as mandatory assimilation—requiring new immigrants to adopt American lifestyles, including the Puritanical ethic of abstaining from alcohol—and some glaring omissions, such as when the otherwise-pioneering Federal Labor Standards Act of 1938 excluded the primarily African-American domestic and farm workers from the protections of the law. Still, there was a compact between the highly educated professionals and the communities they sought to serve that focused on improving living standards for the broad middle class. Frances Perkins, the first woman to lead the Labor Department and author of much of the New Deal, is emblematic of this bond. She was a graduate of Mount Holyoke College, the elite liberal arts school for women, who spent her evenings and weekends at Hull House, the first so-called settlement house, working within the working class communities she sought to serve.

The path forward requires that we rebuild that coalition. The 2016 election opened our eyes to how the governing classes failed the working class. Reviving a commitment to one another is the place to start. The path toward restoring the American Dream requires that we attend to more than making room at the top. Everyone who works for a living should have access to the economic security that the middle class used to provide. Combining forces between the highly-educated and the working class could create a lasting political coalition, one that would put in place an economic agenda that would benefit families and restore economic growth and stability. But this requires we ask more of the favored fifth than simply letting a few more into their club.

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Heather Boushey is executive director and chief economist at the Washington Center for Equitable Growth. Her research focuses on economic inequality and public policy, specifically employment, social policy, and family economic well-being.

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