TIME Economy

What’s Really to Blame for Weak Economic Growth

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
Jin Lee—Bloomberg via Getty Images The George Washington statue stands covered in snow near the New York Stock Exchange

Finance is a cause, not a symptom, of weaker economic growth

After years of hardship, America’s middle class has gotten some positive news in the last few months. The country’s economic recovery is gaining steam, consumer spending is starting to tick up (it grew at more than 4 % last quarter), and even wages have started to improve slightly. This has understandably led some economists and analysts to conclude that the shrinking middle phenomenon is over.

At the risk of being a Cassandra, I’d argue that the factors that are pushing the recovery and working in the favor of the middle class right now—lower oil prices, a stronger dollar, and the end of quantitative easing—are cyclical rather than structural. (QE, Ruchir Sharma rightly points out in The Wall Street Journal, actually increased inequality by boosting the share-owning class more than anyone else.) That means the slight positive trends can change—and eventually, they will.

The piece of economic data I’m most interested in right now is actually a new report from Wallace Turbeville, a former Goldman Sachs banker and a senior fellow at think tank Demos, which looks at the effect of financialization on economic growth and the fate of the working and middle class. Financialization, a topic which I’m admitted biased toward since I’m writing a book about it, is the way in which the markets have come to dominate the economy, rather than serving them.

This includes everything from the size of the financial sector (still at record highs, even after the financial crisis and bailouts), to the way in which the financial markets dictate the moves of non-financial businesses (think “activist” investors and the pressure around quarterly results). The rise of finance since the 1980s has coincided with both the shrinking paycheck of most workers and a lower number of business start-ups and growth-creating innovation.

This topic has been buzzing in academic circles for years, but Turberville, who is aces at distilling complex economic data in a way that the general public can understand, goes some way toward illustrating how the economic and political strength of the financial sector, and financially driven capitalism, has created a weaker than normal recovery. (Indeed, it’s the weakest of the post war era.) His work explains how financialization is the chief underlying force that is keeping growth and wages disproportionately low–offsetting much of the effects of monetary policy as well as any of the temporary boosts to the economy like lower oil or a stronger dollar.

I think this research and what it implies—that finance is a cause, not a symptom of weaker economic growth—is going to have a big impact on the 2016 election discussion. For starters, if you believe that the financial sector and non-productive financial activities on the part of regular businesses—like the $2 trillion overseas cash hoarding we’ve heard so much about—is a cause of economic stagnation, rather than a symptom, that has profound implications for policy.

For example, as Turberville points out, banks and policy makers dealt with the financial crisis by tightening standards on average borrowers (people like you and me, who may still find it tough to get mortgages or refinance). While there were certainly some folks who shouldn’t have been getting loans for houses, keeping the spigots tight on average borrowers, which most economists agree was and is a key reason that the middle class suffered disproportionately in the crisis and Great Recession, doesn’t address the larger issue of the financial sector using capital mainly to enrich itself, via trading and other financial maneuvers, rather than lending to the real economy.

Former British policy maker and banking regular Adair Turner famously said once that he believed only about 15 % of the money that followed through the financial sector went back into the real economy to enrich average people. The rest of it merely stayed at the top, making the rich richer, and slowing economic growth. This Demos paper provides some strong evidence that despite the cyclical improvements in the economy, we’ve still got some serious underlying dysfunction in our economy that is creating an hourglass shaped world in which the fruits of the recovery aren’t being shared equally, and that inequality itself stymies growth.

MONEY health

Americans Less Stressed—Except When It Comes to Money

woman on daybed with $100 bill over her
Zachary Scott—Getty Images

Gen Xers and millennials are the most anxious of all

Feeling anxious about money? You’re not alone. A new survey shows most Americans are at least somewhat stressed out by financial concerns. Moreover, low-income households are increasingly more stressed about money than those with higher-incomes, creating a “stress gap” between rich and poor.

The survey, conducted by American Psychological Association in August 2014, found a whopping 72% of Americans said they felt stressed out about money at some time during the past month, including 22% who said they experienced “extreme stress” during the previous 30 days (rating their stress as an 8, 9, or 10 on a 10-point scale). A large majority of respondents—64%—also said money is a somewhat or very significant source of stress in their lives, with young adults and Gen Xers reporting financial stress in even larger numbers.

That sounds pretty bad, and (spoiler!) it is. But the APA’s 2015 Stress in America report shows Americans are actually less worried about money than we’ve been at any time since 2007, when the survey began. Back then, 74% of Americans said money concerns caused them stress; that number peaked at 76% in 2010 before dropping 12 points over the next four years.

150204_EM_StressMoney_Chart
American Psychological Association

But just because our collective stress about money is decreasing doesn’t mean it isn’t causing problems. Almost 1 in 5 said they had either considered skipping or skipped going to the doctor for needed care due to financial concerns, and the APA says the average reported stress level—4.9 out of 10—is still higher than the 3.7 the group believes is healthy.

Diminishing overall stress also appears to have exposed a gap between richer and poorer Americans. In 2007, low-income households (those making less than $50,000 a year) and high-income households both reported the same levels of stress—6.2 out of 10. But in 2014, low-income households reported higher levels of stress (5.2) than wealthier ones (4.7).

For the APA, the results reinforce what they already knew: Stress is a major problem for the American people. Worse, high stress appears to have become the new normal. “Despite good news that overall stress levels are down, it appears the idea of living with stress higher than what we believe to be healthy and dealing with it in ineffective ways continues to be embedded in our culture,” said APA CEO Norman B. Anderson. He warns that all Americans, particularly those in groups most affected by stress, “need to address this issue sooner or later in order to better their health and well-being.”

TIME Davos

The Coming Crisis Making the World’s Most Powerful People Blanch

TIME.com stock photos Money Dollar Bills
Elizabeth Renstrom for TIME

If global growth slows, as some predict it will, the globe is in for a lot of very big problems

The past 50 years have been the most exceptional period of growth in global history. The world economy expanded sixfold, average per capita income tripled, and hundreds of millions of people were lifted out of poverty. That’s the good news. But according to a new McKinsey report on the next 50 years of global growth revealed today at the World Economic Forum in Davos, it’s very unlikely that we’ll be able to equal that in the future. There are two main reasons for this gloomy conclusion: the global birthrate is falling dramatically and productivity is slowing. Economic growth is basically productivity plus demographics. The result? McKinsey is forecasting that if current trends continue, global growth will fall by 40% over the next half century, to around 2.1% year.

A while back, I wrote a column about what a 2% economy would mean for the U.S. Imagine if the whole world, including emerging markets that need much higher rates just to keep social unrest under control, were growing that slowly too. Not good.

McKinsey got a bunch of big brains—Larry Summers, Martin Sorrel, Martin Wolf, Laura Tyson, Michael Spence, and others—together to discuss all this and figure out some possible solutions. A few interesting points that came out: while we are in the middle of a digital revolution that seems to be disrupting nearly every aspect of business and the economy, not to mention our personal lives and culture, the revolution isn’t showing up in productivity numbers yet. Part of that could be that the way we measure productivity isn’t capturing everything that individuals are doing on their smartphones, tablets, and other gadgets. (It’s also worth noting that a lot of what is being created by individuals on those devices is free, which is an economic problem all its own, in the sense that only a few big companies like Facebook and Google and Twitter capture those creative gains, and they don’t create enough jobs to sustain what’s being lost in the economy.) There’s also the possibility that this “revolution,” simply isn’t as transformative, at least in terms of broadly shared economic growth, as those of the past—the Industrial Revolution or even the 1970s computer revolution. (For more on this, check out research by Northwestern University academic Robert Gordon, who is all over this topic.)

There are things we can do to boost productivity, like getting the private sector more involved in areas like education (for more, see The School That Will Get You a Job), and by allowing the gains from the internet of things (meaning the connection of all digital devices to each other) to filter through over the next few years. It’s not yet clear that will create more jobs though. Indeed, it may create jobless productivity which is a whole new challenge to cope with, one that might require bigger wealth transfers from the small number of wealthy people who do have jobs to the larger number of people who don’t. (Paging Thomas Piketty!)

There are some other ideas on the demographic side. Women are still dramatically underrepresented in the workforce in many countries. (One WEF study estimates it will take 81 more years for global gender parity at the current rate of change—argh!) Putting more of them to work could help a lot with growth; indeed, Warren Buffet once suggested to be that the federal government should provide inexpensive, partly federally funded child care to allow other women to take jobs higher up the food chain, this boosting economic growth. A win win.

Of course, this requires governments to take the lead on what can be politically contentious policy decisions, not easy when most politicians spend much of their terms trying to get reelected. Unfortunately short-termism is rife in the private sector too. CEO tenures are now five years on average and CFOs only last 3. All of which tends to lead to decision-making that benefits corporate compensation more than real economic growth.

Depressing, I know. But I saw one ray of hope when I ran into an emerging market CEO outside the panel, one who runs a family business that does planning in 10- to 20-year cycles rather than quarterly, investing quite a lot in areas like training and education. McKinsey research shows these types of firms will make up the biggest chunk of new global multinationals. Perhaps they can take the long view and come up with some better ideas about how to ensure global growth for the future.

MONEY Inequality

Yes, Oxfam, the Richest 1% Have Most of the Wealth. But That Means Less Than You Think

wealthy man sitting on lawn in front of mansion
Pigeon Productions—Getty Images

It's still bad...but wealth inequality doesn't mean standards of living aren't becoming increasingly equal.

For the past few years, Oxfam, the British anti-poverty organization, has released a series of reports with increasingly dire statements about wealth inequality. This year, it’s back with a new straight-to-the-headlines statistic: The top 1% will control more wealth than the remaining 99% by 2016.

That’s a pretty dire prediction—but the truth is not quite that bad.

First, Oxfam’s prediction is based on trends from 2010 through 2014 that greatly benefited the rich. Right now, the top 1% control “only” 48% of the world’s wealth and it’s unclear whether that number will increase. “Oxfam simply assumes that recent trends (which have been very favorable for the wealthy and very unfavorable for those with limited wealth) will continue,” Jacob Hacker, director of Yale’s Institution for Social and Policy Studies, wrote in an email. “That may be right, but if you look at the report, the longer-term global trend is more ambiguous.”

Second, and more importantly, “wealth” as defined by Oxfam doesn’t mean what most people think it means. That’s because Credit Suisse’s annual Global Wealth Databook, Oxfam’s primary data source, uses so-called net wealth, defined as “marketable value of financial assets plus non-financial assets (principally housing and land) less debts.” By that standard, an American with, say, a high salary and a large mortgage might—if the amount owed on the mortgage is greater than his assets—be counted as less wealthy than a subsistence farmer who doesn’t owe anything.

Consider that U.S. adults under 35 have a negative household savings rate of 2% and you can see how, according to Oxfam, the U.S. has more citizens in the bottom 10% of worldwide wealth than China does. (It places about 7% of Americans in the bottom decile of wealth, and fewer than 0.1% of Chinese citizens.) Only India is said by Oxfam to have more people in this poorest group than the United States. (Finance writer Felix Salmon has helpfully explained this methodological quirk each time Oxfam releases a similar study, and his articles are highly enjoyable reading.)

This doesn’t mean Oxfam’s number is wrong. The one-percenters do indeed control (almost) as much personal wealth as the rest of the population. But as you’ve probably picked up by now, this standard of wealth doesn’t have too much to say about quality of life, and not just in the fuzzy “Can’t Buy Me Love” sort of way. “It’s standard to treat people with more debt than assets as asset poor,” says Hacker. “That doesn’t mean they have low incomes or even, necessarily, a low standard of living.”

In fact, well-being and wealth can be mutually exclusive. Consider the average American worker. Like many people in highly developed countries, she has a relatively high income (on the global scale) and therefore good access to credit. So she tends to borrow against this income to buys things she wouldn’t otherwise be able to afford. If this person had the same access to credit as a Chinese farmer, i.e. almost none, she would be much wealthier in the eyes of Oxfam, but her quality of life might decline as a result.

That’s one reason “assets minus debt” might not be the most instructive way to view global inequality. “Perversely, the low-net-worth citizens in rich countries will appear poorer under Oxfam’s definition of wealth than the low-net-worth citizens in poor countries,” says Gary Burtless, a senior fellow at Brookings specializing in income distribution. “This absurdity points up how misleading it is to rely solely on Oxfam’s wealth definition to judge the progress of relative well-being throughout the world.”

Another issue with Oxfam’s figures is they don’t include what’s known as “public wealth”—the many entitlements citizens of developed nations can depend on. An American with zero net assets might be poor by Oxfam standards, but he becomes a rich man (by international standards) once he turns 65 and starts receiving Social Security benefits.

Public wealth certainly deserves equal billing, says Burtless. “To pretend it doesn’t exist, which is what the Oxfam people are doing, is to disregard all that these wealthy societies have tried to do to protect the living conditions of disabled people, elderly people, and people dependent on someone else,” he argues. “It represents a vast amount of money and it would not surprise me if it completely changes the calculations.”

Oxfam acknowledges these issues but nevertheless defends its approach. “While the measure is indeed imperfect,” an Oxfam spokesperson told MONEY via email, “it’s the best measure capturing the extent of the global wealth disparity at our disposal today.”

Indeed, the “net wealth” approach does capture some of the economic challenges that many middle-class Americans currently face. Using debt to finance one’s lifestyle can be a boon in good years, but leaves one vulnerable in the event of a job loss or other income disruption.

The ability for people with no net assets to live well in rich countries, argues Branko Milanovic, senior scholar at CUNY’s Luxembourg Income Study Center, obscures these sorts of risks.

“This is very important because people who have lots of wealth can ride out a crisis much better,” says Milanovic. Wealth also buys power in a way credit does not. “For political reasons, ownership of wealth is important,” Milanovic argues. Without unleveraged capital, “even if you have a nice life, you won’t be able to have much political influence.”

But while Milanovic makes a compelling case for wealth’s connection to standards of living, others question the focus on numbers that seem to minimize significant progress made toward global equality over the last half century.

“It’s strange that we’re going to emphasize the gap between the world’s richest person and people in lowest income distribution given the fact that the person in the middle has actually seen a faster progress in his or her living standards since the mid to late 1970s than at any point in human history,” says Brookings’ Burtless. “There’s a certain irony.”

MONEY Inequality

You’ll Never Guess Which State Has the Nation’s Most Unfair Taxes

Washington state may vote progressive, but its taxes are anything but.

When you think of states that hurt the poor and benefit the rich, ultra-progressive Washington state probably doesn’t spring to mind. And yet, according to a new analysis, Washington’s tax system is the most regressive in the nation, placing a disproportionate burden on those with the lowest incomes.

The study, published by the nonpartisan Institute on Taxation and Economic Policy, finds the poorest 20% of Washington’s population pay almost 17% of their income in taxes, while the richest 1% pay just 2.4% of their earnings. The middle 60% of earners are taxed slightly more than 10% of their income.

While Washington’s regressive tax structure might seem surprising, it shouldn’t be. The institute observes that virtually every state in the union has a tax system that takes “a much greater share of income from low- and middle-income families than from wealthy families,” a policy the report describes as “fundamentally unfair.”

How some tax systems burden the poor

The most well-known tax to most Americans is probably the federal government’s progressive income tax, the “progressive” part meaning it takes a higher percentage from rich than the poor.

However, states actually gain a large portion of their revenues through regressive taxes, meaning those that disproportionately impact people with low income.

Any tax that asks everyone to pay the same amount—sales tax, for example—is regressive, because by taking “equally” from everyone, it takes a higher percentage of a poor person’s income than takes from a richer individual.

Here’s ITEP’s list of the 10 states that take the biggest tax bite from the least affluent residents:

Screenshot 2015-01-14 11.15.00

States in the report’s “Terrible Ten,” such as Washington, rely heavily on sales tax and excise taxes (taxes on specific products, like gasoline or cigarettes) and less on taxes that rise based on income.

Similarly, the institute’s report also reveals that highly regressive states also don’t levy a personal income tax (in the case of Washington, Florida, South Dakota, and Texas), meaning the state must raise more money through regressive consumption and property taxes.

Even states that do tax personal income sometimes do so in a non-progressive fashion. Pennsylvania has an income tax, but applies the same 3.07% rate to everyone. That might seem fair, but $614 means a lot more to a person making $20,000 than $3,070 does to someone making $100,000, even though both amounts are 3.07% of their respective salaries.

Other states on the list do have a progressive rate structure but have so few tax brackets that the outcome is effectively a flat tax. Kansas, for instance, has only two tax brackets, and married couples making $30,000 or more are taxed at the highest rate.

In either case, the the state generally must rely on other regressive taxes to make up for not taxing wealthier individuals a higher proportion of their income.

How to build a fairer system

States with the fairest tax structures follow a completely different path. Oregon, ranked as one of the least regressive states, relies heavily on a very progressive income tax. That allows it lower its dependence on regressive consumption taxes and eliminate sales tax entirely.

These states also have earned income tax credits (EITCs)—essentially tax refunds targeted toward low-income working families that can give certain households a reduced tax burden or, in some cases, a negative tax bill, meaning the government gives them money. The report describes these credits as offsetting the regressive taxes and helping poor families afford necessities.

Screenshot 2015-01-14 12.56.50

Inconsistent improvement

While some states have made their tax systems more fairer in the past year, many have taken a step back. Since 2013, Delaware and Minnesota have increased income tax rates for high earners, while Colorado, Iowa, and others have beefed up their earned income tax credits. At the same time, multiple states have become less progressive by increasing sales tax or implementing a flat income tax rate.

“The bleak reality,” the report concludes,” is that even among the 25 states and the District of Columbia that have taken steps to reduce the working poor’s tax share by enacting state EITCs, most still require their poorest taxpayers to pay a higher effective tax rate than any other income group.”

Read next: How Obamacare Could Make Tax Filing Trickier This Year

Listen to the most important stories of the day.

TIME Innovation

Five Best Ideas of the Day: January 13

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. The U.S. could improve its counterinsurgency strategy by gathering better public opinion data from people in conflict zones.

By Andrew Shaver and Yang-Yang Zhou in the Washington Post

2. The drought-stricken western U.S. can learn from Israel’s water management software which pores over tons of data to detect or prevent leaks.

By Amanda Little in Bloomberg Businessweek

3. Beyond “Teach for Mexico:” To upgrade Latin America’s outdated public education systems, leaders must fight institutional inequality.

By Whitney Eulich and Ruxandra Guidi in the Christian Science Monitor

4. Investment recommendations for retirees are often based on savings levels achieved by only a small fraction of families. Here’s better advice.

By Luke Delorme in the Daily Economy

5. Lessons from the Swiss: We should start making people pay for the trash they throw away.

By Sabine Oishi in the Baltimore Sun

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Innovation

Five Best Ideas of the Day: January 8

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. The same features that make cities hubs for innovation may spur inequality. Smart policies can strike a balance.

By Richard Florida in CityLab

2. Solar power can provide hot meals for the masses.

By José Andrés in National Geographic’s The Plate

3. A simple way to make a huge difference in the lives of foster kids: college scholarships for youth ‘aging out’ of the system.

By Jennifer Guerra at National Public Radio

4. When we include women in post-conflict peacekeeping, they do a better job of managing resources to prevent future war.

By Priya Kamdar in New Security Beat

5. It’s time to build a more secure internet.

By Walter Isaacson in Time

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Companies

The Biggest Problem American Business Is Facing in 2015

TIME.com stock photos Money Dollar Bills
Elizabeth Renstrom for TIME

In order to remain competitive on the world stage, America’s top companies need to take the lead in addressing economic inequality

As 2015 progresses, an improving U.S. economy should buoy markets and provide hope for the business sector. However, before we pop the champagne, it is worth remembering that the past year has also been a turbulent one. Economic inequality continues to widen and worker strikes, once rare, are now increasing in frequency.

The reality is that despite gains in profitability and shareholder value, American businesses could experience a serious labor problem in the near future, and the sooner it is addressed it, the better.

Broadly speaking, there are three factors working against the U.S. right now. The first is an aging population, which not only threatens to burden the system with greater costs in terms of social benefits and pensions, but also a shortage of younger people to fill jobs. Exacerbating this is the fact that the working age population in the future, composed of millennials (and their successors) will require better work benefits, including flexible schedules, higher pay, and room for creativity, in order to feel motivated – a phenomenon that will make it more difficult for companies to secure and retain talent.

By contrast, China and India have vast untapped labor pools, and 65% of India’s population is currently 35 or under, ensuring a young and dynamic labor force for decades to come. This has historically benefited the U.S. through cheap labor, but that could change as these economies become stronger and wage levels rise in response. In addition, Chinese and Indian companies have themselves begun to compete aggressively in the global arena with the workforce behind them to support it, which could put their American counterparts at a disadvantage.

The combination of these factors and a growing perception amongst low and middle income workers of economic unfairness could lead to a crisis of worker availability and competitiveness for U.S. companies within the next few decades unless employers can reach a balance between profitability and compensation that will motivate workers. This is particularly important in the arenas of fast food and retail, which require a large labor force but where wage levels are typically low and a source of escalating friction between companies and their employees, but could effect other sectors as well.

Unfortunately, we keep looking towards the government for a solution, which is a mistake. In today’s hyper-partisan environment of Capitol Hill, compromise on a politically charged issue like wages on which Democrats and Republicans fundamentally disagree is nearly impossible. Moreover, the idea of taxing our way to economic equality, advanced by economists like Thomas Piketty and even Microsoft founder Bill Gates, is unrealistic. Even if it was politically feasible, additional taxation would do little to bridge the gap between employers and workers.

That can only be accomplished by a concerted effort to understand and address the needs of workers by companies themselves, and requires the participation of our most influential business leaders.

For too long, the debate over fair wages has remained stuck in the quagmire of ideology (on both sides), but what is really required is the recognition by the CEOs who run our major corporations of the direct link between worker compensation and the future profitability of their businesses. The reason this is so critical is that our biggest companies set wage levels in their sectors and so only through their participation can a true market-driven solution be found to this pressing problem.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School. Follow him on Twitter @sanghoee

TIME

How the American Family Has Changed Dramatically

The difference between the haves and the have-nots have never been this steep

Hulton Archive; Getty Images
Kentucky Family
MPI—Getty Images

Modern marriage presents something of a conundrum for sociologists. The benefits of marriage have been widely studied; they include better health, better finances and a leg up for children raised in a stable environment. Some studies have even suggested that the legally wed have more sex. Marriage is an attractive enough proposition that people have marched and protested to allow a new subset of people to have access to it. Yet marriage rates are in decline.

In fact, a new book by a well-respected sociologist argues that the American family unit is facing challenges it has never encountered before.

Specifically, the marital decline has occurred among the working class. According to one study, more than 60% of white males aged 20 to 49 with jobs in the service sector, like waiters and janitors, were married in 1960. By 2010 that figure was less than 30%. Among African American men in the same situation the figure is less than 20%.

The non-married are not swinging George Clooney style bachelors who play the field until they find the perfect woman with whom to set up a home. These are usually fathers, men who have children and responsibilities and are often living with the mother of at least some of those children, or have lived with her in the past. They have made a family, but they haven’t founded that family on a marriage.

Meanwhile, for the wealthy, a successful and lasting marriage has become more and more likely. Professional men marry professional women, they pool their considerable resources and spend at least some of them on meticulously raising offspring, who get the best education, enrichment activities and artisanal bread for their lunchtime sandwich. They can afford to outsource or avoid those tasks that cause tension in less comfortable marriages: childcare, food provision, cleaning, unpaid bills, unemployment.

This has led some such cultural critics as Charles Murray to speculate that permissive social norms championed largely by the rich have worsened the struggles of the poor. The rich, argues Murray, can afford to abandon the responsibility of marriage and the loss of its benefits. Yet they do not. The less well-off, who would most benefit from the stability of institutions such as marriage, are disinclined to embrace its strictures.

Other argue, however, that poverty is what’s keeping people from tying the knot. People don’t get married because it brings burden without benefit. Men don’t feel they can support a family, and women don’t want to be tied to a man who may be a drag on her already meager income.

Now Andrew Cherlin, the well-respected sociologist at Johns Hopkins university has weighed in with a persuasive case for a sort of middle ground. In Labor’s Loves Lost (get it? Like the Shakespeare play, only it’s about the loss of love among the laboring class), he traces the course of marriage through history, specifically the history of the economy. Marriage and the economy, he finds are inextricably linked.

What Cherlin finds that this is not the first time that there has been a wide disparity between the marital fortunes of the rich and the poor: the situation looked similar during the last Gilded Age. Inequality in bank accounts and in marital status go hand in hand.

But the cultural critics are not totally wrong. Since the last gilded age, there has been a transformation in people’s attitudes to living together without getting married. Gone is the age of the “bastard,” or the “illegitimate” child. Now, rich and poor alike believe that living together before marriage is a prudent step. (Even though the studies don’t actually confirm that.)

What this means, argues Cherlin, is that we are in whole new territory. “It is the conjunction of the polarized job market and the acceptance of partnering and parenting outside of marriage that makes the current state of the American family historically unique,” writes Cherlin. “There has never been such a large, class-linked divergence in nonmarital childbearing. There has never been such a split between marriage-based families on the top rungs of the social ladder and cohabitation- and single-parent based families on the middle and bottom rungs.”

The gap in the family life of the rich and poor yawns wider that it ever has, and the individuals most hurt by this are, you guessed, it, the children of the poor. The working class have experimented with a new type of family formation that’s not based around the equation of one partner who runs the home front, plus one partner who brings in the income, both of whom throw in their lot together for the long haul, partly because they don’t have to, but mostly becasue that is no longer an option for may of them. The new formulations tend not to be as stable, and instability is sub-optimal for kids.

Cherlin doesn’t have any easy answers for the nasty bifurcation in the family life of America. Somehow, young people have to be persuaded to delay childbirth. Somehow, people have to be educated and trained for jobs that pay enough that they can begin to feel enough ground under their feet to start a more permanent sort of life. Somehow, those jobs, such as those in manufacturing, have to be created.

None of this sounds remotely romantic. But if the crisis in American family life is to be overcome, it’s going to take more than a George Clooney movie.

TIME Innovation

Five Best Ideas of the Day: December 4

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Reimagine your school library as a makerspace.

By Susan Bearden in EdSurge

2. New materials could radically change air conditioning.

By The Economist

3. Ambassadorships are too important to hand out to political donors.

By Justine Drennan in Foreign Policy

4. There’s a better way: Using data and evidence — not politics — to make policy.

By Margery Turner at the Urban Institute

5. The tax-code works for the rich. Low-income households need reforms that make deductions into credits and stimulate savings.

By Lewis Brown Jr. and Heather McCulloch in PolicyLink

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser