MIT Economist: While the White, Wealthy Few Are Thriving, the Rest of America Is Living In a Third World Nation

MIT Economist: While the White, Wealthy Few Are Thriving, the Rest of America Is Living In a Third World Nation



David Love

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Much these days is said of income inequality in the U.S., of the gaping, ever-expanding chasm that separates the haves from the have nots, the rich from the poor, the 1 percent from everyone else. This, in the richest nation in the world. One author, a prominent MIT economist, has taken this discourse a step further and has concluded that America has regressed into a developing nation for most people. There is a dual economy, he states — one low-wage and the other high-income, with the former having no influence in the public policy arena and finding itself subject to the machinations of the latter.

In his new book, “The Vanishing Middle Class: Prejudice and Power in a Dual Economy,” Peter Temin, professor emeritus of economics at MIT, lays out his findings on the structure of economic inequality in America with a rigorous, often-neglected analysis of the role of race. In his research, Temin found there is no single national economy but rather two separate economies: 20 percent of people are in the FTE sector, the elite economy of the country named for finance, technology and electronics, while the remaining 80 percent are in the low-wage economy. There is no longer a middle class, with most of that group emerging in the poorer economy and only a handful finding themselves in the high-end economy.

One of the most salient points of Temin’s book is that most Americans are living under conditions found in a developing country, a Third World nation. What does this look like? For one, infrastructure for people in the U.S. low-wage economy — the crumbling roads and bridges, substandard housing and poor public transportation, for example — resembles conditions found in Latin America or Southeast Asia rather than Western Europe or Japan. Another factor that distinguishes the economy of America’s poor is the reduction of resources to the welfare state and the shredding of the social safety net. Wages are kept as low as possible to extract as much profit for the wealthy, and the poor are burdened with high debt. People also suffer from health problems, and their public education system is “hobbled by the lack of resources to make teaching an attractive career,” and in a state of crisis.


Peter Temin, Professor Emeritus of Economics at MIT (Source: MIT)

Another Third World condition found in the U.S. is the use of social control to keep the people on the lower rungs of the economic ladder from resisting the policies imposed upon them by the wealthy. Temin notes that the military, along with prisons and the Federal Reserve, are the few government activities approved by the FTE sector. Police in the U.S. have become paramilitary organizations, obtaining surplus military equipment from the Pentagon to repress Black and Latino communities. Similarly, immigration policies, particularly against Latino immigrant workers, has become militarized and reduced to border control, Temin writes, while mass incarceration, the war on drugs and tough-on-crime policies are designed to keep Black people in their place.

In his book, the MIT economist also delves into the racial dynamics of inequality, and the importance of race in discussions of inequality in the U.S. For example, he notes that whites dominate both the FTE and low-wage economies, constituting majorities in each. Blacks make up less than 15 percent of the population, which means that even if all were in the low-wage economy, they would only comprise less than one-fifth of the poor.


The model that Temin employs in his work is the Lewis model, developed by the late W. Arthur Lewis (1915-1991), a St. Lucian native and the first Black Nobel laureate in economics. In his pioneering work in economic development, Lewis examined how labor in a developing economy is transferred from the subsistence agricultural sector and the capitalist or industrial sector. Under Lewis’ theory, the traditional agricultural sector has surplus labor that is absorbed by the industrial sector, which leads to profits that are reinvested in the business, leading to sustained economic development and modernization.

Temin said, while the Lewis model normally is used in an optimistic way to examine economic development, he has invoked the model in a different manner. “It struck me that the Lewis model is a very good description of what is happening in the United States,” Temin said. “It struck me it was the Lewis model but run in reverse. Not that we are a failed state where law and order has broken down and people are running in the streets but a failed state because we are going back to that earlier industrial pattern that Lewis identified.” He noted the two characteristics of the model that are important in his book: One is the capitalist sector, the FTE. The FTE wants wages, earnings and living conditions in the low-wage sector as bad as possible so as to provide a cheap labor source.

The other part of the equation, according to the economist, is that it is possible for individuals to move from the lower sector to the upper sector if they want to make the investment and move to the cities and get an education. “But the vast slums show it is not enough to go to the cities. You need something special to get a good job in the capitalist sector. It is the same thing here. There is a difficulty in making the transition. The FTE sector is not interested in facilitating the transition, so it becomes harder and harder. The difference between the two sectors makes it harder.”

W. Arthur Lewis, Nobel Laureate in Economics (Source: Wikipedia)

What is missing from the discussion on inequality, Temin says, is the fact that education and salable skills —cognitive knowledge, STEM subjects and human capital — are not enough to get ahead. Rather, one also needs social capital, which speaks to how one gets along with other people, relates to others and secures jobs from others. Research has shown that Blacks who get an education have more difficulty getting jobs, Temin explains, so they wind up in lower-paying professions such as education and the nonprofit field. In contrast, people in the FTE sector have social capital, including the benefits of friends and relatives who help them. “They know people who know people who can give them jobs. They have to do the work to get promoted, but they get in the door,” Temin said. Many Black people are lacking in the social capital, the connections, to get into the FTE door. “One of the things about this is that the people who have made it, the whites who have made it, don’t recognize the role of social capital in their prosperity. A fish doesn’t know it is swimming in water, [as is the case with] people who got jobs in FTE firms,” Temin explained.