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August 30, 2014

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Poof goes the middle class

Imagine a future in which real wages for most workers decline year after year; a future in which middle-class jobs that disappeared in the Great Recession won’t be coming back; a future in which young Americans either squeeze into an increasingly wealthy elite or tumble to the bottom, with fewer and fewer in what we once called the middle class.

Actually, that’s a description of the present. The future looks even bleaker, according to libertarian economist Tyler Cowen.

For his new book, “Average Is Over,” Cowen projected current trends out over the next 20 years. His conclusion?

“Our future will bring more wealthy people than ever before, but also more poor people,” he writes. “Rather than balancing our budget with higher taxes or lower benefits, we will allow the real wages of many workers to fall — and thus we will allow the creation of a new underclass.”

Remember, Cowen isn’t adding or subtracting anything from what’s already happening. He’s merely forecasting based on current trends: middle-class American jobs being eliminated by automation and outsourcing, downward pressure on wages for all but the most skilled, growing inequality between the wealthy and everyone else, and elected officials who don’t seem capable of slowing those trends, let alone stopping them.

And that’s not all. Cowen foresees a future in which employers constantly measure individual workers’ performance “with oppressive precision,” the better to weed out underperformers quickly; a future in which retirees, their savings exhausted, move to newly built shantytowns (like “the better dwellings you might find in a Rio de Janeiro favela”) in low-cost states such as Texas; a future in which the new underclass, instead of rebelling against the elite, consoles itself with online entertainment and scientifically improved narcotics to make life palatable.

OK, at this point you’re probably asking: What kind of monster is this guy?

Not a monster; merely an economist.

“I’m not prescribing these outcomes. I’m just predicting them,” he told me recently over lunch in a Korean restaurant near Virginia’s George Mason University, where he teaches. (When he’s not predicting a dystopian future, he maintains a website devoted to ethnic restaurants around Washington.)

“Think of it as an unvarnished version of reality,” he said. Besides, he adds, some things about the future look pretty good.

As the American economy becomes ruthlessly more efficient and more productive, he expects the economic elite to grow to as large as 15 percent of the population — people who will “live like millionaires,” even if they aren’t making a million dollars a year.

They’ll include the elites of today, plus technologically adept professionals in fields from robotics to health care whose jobs can’t be shipped overseas, plus an upper servant class of service workers to the rich. “The best yoga teacher in town is going to do very well,” he said. The third-best yoga teacher, not so well.

Social mobility won’t disappear; indeed, cheap online education will make it possible for the most gifted and motivated in the underclass to rise. But they’ll have to be both very smart and very diligent; because of constant performance testing, there will be few second chances for those who don’t get it right the first time.

But inequality will increase. And maybe that’s OK, Cowen says. “I don’t think we know the causal relationship between inequality and happiness,” he told me. If people have decent low-cost housing, food and health care, they might even be happier in a middle-classless future, he speculates.

That’s where most of us, including me, will object. Leave aside, for the moment, the moral question of whether an increasingly unequal society is inherently unfair. An impressive number of economists, including the liberal Robert Frank of Cornell, argue persuasively that inequality is also bad from a practical cost-benefit perspective — that it leads to lower economic growth, more poverty, more fragile families and, as a result, less happiness.

Even Cowen says he isn’t as indifferent to the results as his predictions make him sound. If a “hyper-meritocratic” economy produces more poor people, he says, he’d support the idea of a guaranteed minimum income.

But even that wouldn’t solve the underlying problem. If Cowen is right, we face a crisis over our national identity. The American dream isn’t only of success for a few high achievers; it’s about an economy that supports a healthy middle class and opportunity for the striving poor.

So here’s a challenge for leaders and citizens on both sides. We already know that wages are falling and inequality is increasing. What do you plan to do about it?

President Barack Obama says he’d invest in education and training, increase the minimum wage and raise taxes on the wealthy — but he’s not likely to get much of that from this Congress. Republican leaders say they’d lower taxes, cut government spending and shrink the national debt — but even if those policies spurred economic growth, it’s not clear that they’d keep the middle class from turning into an underclass.

New ideas, anyone?

Doyle McManus is a columnist for the Los Angeles Times.

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