The American Interest
Policy, Politics & Culture
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What Is to Be Done?

A reply to Walter Russell Mead.

Published on January 26, 2012

Walter Russell Mead has established himself as a broadly learned and thoughtful discussant of public policy questions. His blog for The American Interest, Via Meadia, is widely read, as are his frequent books. Politically he seems to be a centrist Democrat who both supported our war against Iraq and voted for Barack Obama even though Obama had opposed that campaign.

Now we have this essay, which argues that an older American economic and social order, what he calls the “blue model”, has broken down. In the older and happier world, the economy and personal incomes grew, strong unions had stable relations with large corporations, high-school graduates could expect lifetime employment, and the gaps between social classes remained stable. Today, however, the blue model is crumbling. The old world is being redefined by four (maybe five) kinds of liberalism that Mead calls 1, 2, 3, 4 and 4.1. What we need, he suggests, is liberalism 5.0.

Mead knows a great deal about American thought, but expects his readers to follow an argument about liberalism 1, 2, 3, 4, 4.1 and 5.0. Perhaps this is what happens when one’s knowledge of history comes largely from studying literature more than data. Alas, I am a data-driven man, and I cannot follow his argument. Take, for example, his statement about the old world of stable classes and the new world of unstable ones. Does he mean by this that the gaps between the classes have widened and that the less affluent no longer make progress? If so, he is wrong on both counts. According to UC-Berkeley economist Emmanuel Saez, the top one percent of all Americans earned in 2002 about the same share of all income as they did in 1927. Northwestern University economist Robert Gordon has shown that the increase in income inequality has been exaggerated; indeed, labor’s share of national income in 2009 was about the same as it was in 1983 despite the recession. The Congressional Budget Office found that, in dollars adjusted for inflation, the average annual income of the poorest households increased by more than one third between 1991 and 2005. Perhaps I am mistaking what Mead meant in his essay. But that is the trouble: One cannot tell what he meant.

We should take some pride in a few things that have changed. High incomes based on earning a fat salary have been substantially replaced by high incomes derived from stock options and capital gains. In short, getting rich now depends much more on making one’s company better and much less on getting a big paycheck. This change was in great part the result of a Federal regulation. In 1993, a rule limited the tax deductibility of any executive compensation over $1 million if it consisted of salary and bonuses. The result has been to make the prosperity of CEOs more dependent on the success of the firms they manage.

Moreover, there is considerable movement among income groups. Several scholars have shown that many people move in and out of income groups, often by large amounts. Lifetime employment in one firm has been replaced by educational changes. People studying to get an MBA, and thus poor or even in debt, become people who earn a big income at one firm and then move from one firm to the next as their talents emerge.

Mead is quite correct that the nation, by Medicare, and cities and states, by under-funded pension plans, has created a fiscal mess. The nation designed an unrealistic health care plan for the elderly, and localities gave way to powerful public-sector unions in creating retirement schemes. The interesting question is what the country can do about these problems, not an endless discussion of 4.0, 4.1 and 5.0 liberalism. Liberals and conservatives as generic, literary categories have no answers for these problems, but specific, individual liberals and conservatives have proposed plausible solutions.

Mead’s essay is, at best, an outline for a book that will take a hard, numbers-based account of what has changed over the past century, how people have been helped or hurt by those changes and what a student of public affairs would do about that.

James Q. Wilson teaches at Pepperdine University and is a member of the AI editorial board.