The Economy Will Never Be What It Was Before the Recession

The gap between rich and poor only gets wider.


Picture a smoky room somewhere on the Upper West Side of Manhattan, like where the shadow government known as "The Syndicate" met on the old  X-Files TV show.

There's a group of powerful businessmen and economic analysts meeting with national policymakers, central bankers, and their aides. They talk candidly about the global economy and how America fits into it.

The conversation would sound something like this:

"Are they still out there?"

"Who, the Occupyers? Yeah. But they'll die down once it gets cold. And the public's already getting sick of them, what with stories about violence and assaults and such piling up."

[See photos of the "Occupy" protests.]

"Maybe. But this problem isn't going away. Did you catch that  analysis by Arnold Kling over at the American Enterprise Institute? He gets it:

The recent trend in job polarization raises the possibility that gains in well-being that come from productivity improvements will accrue to an economic elite. Perhaps the middle-class affluence that emerged during the latter part of the industrial age is not going to be a feature of the information age. Instead, we could be headed into an era of highly unequal economic classes. People at the bottom will have access to food, healthcare, and electronic entertainment, but the rich will live in an exclusive world of exotic homes and extravagant personal services.

"Yeah, you don't often hear that kind of thing from the right these days. So many conservatives and libertarians are stuck in the late-'70s. They're still tilting at imaginary socialists. They think, if we just cut taxes across the board, one more time, and finally get serious about trimming the budget, we're going to see broad prosperity again. Rising tide lifts all boats, stuff like that."

[Read about how today's young adults suffering more financially than older generations]

"There's a pretty large faction on the left that's just as clueless. They think we can patch together the old postwar model, where taxes go way up on the rich. Labor unions regain their influence. We keep our entitlement structure as-is. Cut the heck out of defense. The virtuous Big Labor-Big Government alliance restores the middle class."

"Hold on, guys, I see a few glimmers of recognition inside the Obama White House. They don't want to see taxes back at Eisenhower-era levels—just Clinton-era. That's doable, and the public supports it. In the grand-bargain talks, they put entitlements on the table."

"Okay, so let's say we get a grand bargain—maybe under Romney. We get the annual deficits under control. Decent GDP growth resumes. Big whoop. We've still got the reality identified by Kling."

"Well, if Obama stays in, he'll boost Pell Grants. He'll increase spending at all levels of education. He'll boost early-childhood spending. He knows a college degree is the only way to dip into the tide of social mobility."

[Vote now: Will Obama be a one-term president?]

"Buddy, don't you see who's out there protesting? College grads. There aren't enough jobs for them now. And, GDP-wise, our economy  is producing the same amount of widgets it did before the crash.  Profits are up. The topline numbers are just fine, with a lot fewer workers. College is  out-of-control expensive, and it's not delivering the goods in the way that we thought it was. These clowns are barely employable—and there are hundreds of thousands of smart Chinese and Indians out there who are willing to do the clerk-y work and the customer service that computers can't do. They can do it remotely, competently, and cheaply."

"Did you hear about  what's going on in the schools down in D.C. The gifted-and-talented kids aren't diverse enough, apparently."

"Nature or nuture?"

"Who cares? It doesn't matter. Even if it's fixable, it's not going to change in the short run."

"So what do we got?"

"We've got a global economy that will continue to overwhelmingly benefit the cognitive elite. And when minorities become a majority, this system is going to have more than a hint of the old colonial caste systems, with their ' Backward Classes.'"

"Maybe so. But the Cognitive Elite better not kid itself. They can't keep the motor going all by themselves. We're still a consumer-based economy—and the superrich are going to have to massively subsidize the working- and middle-class just to keep them above water."

[Check out a roundup of editorial cartoons on the economy.]

"We tried that in the 2000s, with easy credit and a crackhead housing market. Look where that got us."

"That's why I said 'subsidize': We're going to have to start being a lot more honest about this arrangement. And the oldsters who want to keep drawing on Social Security and Medicare better lay out the "Welcome" mat to the immigrants—that's who's going to fund their retirement, if they can afford retirement."

"More immigrants—that's going to exacerbate the caste-system trend you were talking about. But the cognitive elite will love it—they can expand their servant class."