Education Is the Key To Economic Success
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Senator Clinton is wrong to blame the Bush administration’s economic policies for the worsening condition of the middle class. In fact, the slice of the American pie claimed by middle-income citizens has been shrinking for decades, and it tumbled considerably during the eight years her husband was president.
In 1992, when President Clinton was elected, the share of household income going to those in the middle quintile of all Americans was 15.8%; by 1999, it had slipped to 14.9%. Last year, the middle group, which on average earned slightly more than $46,000, accounted for 14.6% of the total pie. In other words, under President Bush the middle earners statistically have lost less ground than they did under Mr. Clinton.
Similarly, Mrs. Clinton continually chastises the current administration for fattening the pocketbooks of the wealthiest Americans. Once again, she is off base. During her husband’s eight years in office the wealthiest, Americans made out like bandits. The top quintile of American earners enjoyed 46.9% of the total pie in 1992 and saw that share increase to 49.4% in 1999. In 2005 (the last year for which data is available), the top earners accounted for 50.4% of total income. The widening was considerably greater under Mr. Clinton.
In reality, these trends have been under way for some time. The tipping point was in the mid-1970s. In 1976, the lowest income quintile accounted for 4.3% of income, while the middle accounted for 17.0% and the top earned 43.7%. The lowest quintile in 2005 earned only 3.4% of the total, and in fact the income of that group in constant dollars, (adjusted for inflation) has held remarkably steady.
In other words, for some time, and during many different political administrations, the rich have gotten richer and the poor have barely held their ground against inflation. Why?
I am not a student of Karl Marx (or a fan), but I believe that the father of socialism relegated the earnings of society to two inputs: capital and labor. His arguments rested on the appropriate share that each input should claim of total output and income.
In the modern era, I would argue that a third element is equally critical to output and deserving of income, and that is intellect. That is, a case can be made that the reason the bottom quintile is being left behind is because that group lacks an element that is rising in importance — education. America is increasingly competing on intellectual talent – design, management, and creativity. In other words, the country depends ever more on the fruits of its entrepreneurial system and on its unsurpassed higher education system.
There are dots to be connected that bear this out. Consider last week’s extraordinary news that productivity increased 6.3% in October. Although monthly readings on this measure of efficiency can be misleading, there is no denying that the productivity gains of the past decade have been nothing short of breathtaking. To quote the Congressional Budget Office: “Between 1995 and 2006, the nation’s labor productivity … grew at an average annual rate of 2.7%, well above its 1947–1995 average of 2.1%.” As the CBO points out, these gains came despite numerous shocks to the economy, including two wars, a terrorist attack, and a sharp rise in the price of oil.
Economists have been hard-pressed to explain the unexpected surge in productivity. Especially confusing has been the continuation of the rise even as America nears the seventh year of economic expansion, as productivity is usually associated with the early part of a recovery.
Most explanations for this stubborn (and wonderful) gain in efficiency and output focus on technology, and the leads and lags that accompany implementing new technologies into the workplace. However, the absence of similar productivity gains in Europe, where investment in technology has mimicked that of America, suggests that something more is afoot.
The CBO indicates that a variety of factors, including the stimulative impact of increased competition, a more agreeable regulatory climate, and better management practices, have contributed to our above-average productivity gains. (That is, the private equity folks will be lining up to take credit.)
In other words, we’re working smarter, not just harder. It is, I believe, those “smarts” that are benefiting the upper quintile of American earners. Wherever we are still a major player on the world’s stage, it is generally because of intellectual talent. This applies, for example, to fields such as pharmaceutical development, software design, movie-making, retail marketing, and financial engineering (for better or worse). If it is intellectual firepower that is stimulating our successes, economists would expect to see that component of output rewarded, and in fact it has been.
Income has always been higher for those with more education, but in fact the gap has widened. In 1990, the median income of men who had completed only high school was about $26,600, while those with a bachelor’s degree earned $39,300, a premium of 48%. In 2005, high school grads earned $36,000, while those with a college degree earned $60,000, a premium of 65%. The income bonus for having a master’s degree in 1991 was 85% over someone with a high school degree; in 2005 that differential had increased to over 100%.
As the nation veers increasingly toward intellectually driven pursuits, this gap will continue to increase. So, instead of trying to do away with tax policies that, for instance, favor investors on the basis that they are disadvantageous to the middle class, Mrs. Clinton and all the candidates should really be focused on raising the overall education level of Americans. It is from the continued development of our intellectual stock that our country will continue to grow and to succeed, not by reducing the rewards available for those who have already done so.
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