The central question of this political season is what happened to the middle class? What happened to the American Dream?
Huffington Post's Arianna Huffington: Something went terribly wrong. Right now, two-thirds of Americans believe that their children are going to be worse off than they are. America without a middle class is a Third World country. And if we don't course-correct and take the danger of the crumbling middle class seriously, we are really going to become a country of extremes, with the rich behind gates protecting their kids from kidnapping and everybody else struggling to make a living.
Explain to me what the middle class actually is today?
Yale University's Jacob Hacker: Americans know that they want to be part of the middle class. It's an aspiration as much as it is an income category. One of the things that is striking when you start to look at the statistics is that most Americans really have experienced very similar developments over the last 30 years, because most of the economic gains have gone to a very small slice at the top. When you take into account income taxes and government benefits and private health insurance and pensions, roughly 40 percent of all household income gains over the last generation, from 1979 to 2007, went to the richest 1 percent of Americans. So it's not that strange to think that even someone who's making $200,000 a year would think of themselves as middle class in that context.
Ken, you've written about eight centuries of economic collapse. So what's the arc that led us to where we are now?
Harvard University's Kenneth Rogoff: Well, I think the biggest part of it is this process of globalization going on with China and India. Pour 2.5 billion people into the world labor market—and they're poorer and some of them are willing to work very hard—it's going to hit you no matter what your policies are. But there's certainly an overlay of policy which instead of making things better made things worse. It brought us the financial crisis and exacerbated income inequality.
Steve, you've said that it's no coincidence that polarization of income distribution in the U.S. goes hand-in-hand with a polarized political process. What's the impact?
Washington Post's Steven Pearlstein: As more and more of the income gets concentrated in the top, people at the top might use some of that money to essentially buy the political process, to buy politicians, to buy lawyers, to frustrate regulatory efforts, and essentially turn government into an instrument in which they can get yet more.
If you go back to the Progressive Era, that's what they were concerned with. The reason they wanted to bust the trusts was because the trusts would use their money to essentially use government as a club against everybody else.
Huffington: The anger that has been unleashed is really something that is threatening not just our economy but our democratic stability. It's very serious. That is really the by-product of that sense that the dice are loaded, that somehow we don't have a level playing field. And that is really what is at the heart of this demonizing, scapegoating, turning us against one another.
People are looking for someone to blame for the state of things.
Rogoff: I thought a signal moment in this was when President Obama gave a speech on Wall Street just before the financial regulation bill was passed. He said, "Stop lobbying us. We've got to do this. You've really got to stop lobbying us. You have to accept it."
He didn't say: If you don't, we're going to stop accepting your money. We're going to cut off the revolving door that puts many top officials who regulate you into the financial sector.
It really is a profound problem.
Members of the business community say the reason that they have problems with the Administration is that the President demonizes business.
Hacker: Well, that's not what Americans think. The Pew Research Center asked people who they think the government was helping a great deal in the wake of the economic crisis. And 53 percent said that Wall Street was being helped a great deal. Two percent thought that the middle class was being helped a great deal. There's a real sense of disconnect among Americans. They feel as if the lobbyists are swarming over Washington, getting what they want. And yet there's 10 percent unemployment. There's been a decade of no growth, 30 years of rising disparities.