The American economy wasn’t healthy before COVID-19. A middle-class life — the American Dream — was out of reach for most.

Social-democratic Canada and Europe prevented more people from falling through the cracks, but even there millions felt economically and culturally left behind.

A sense that the system wasn’t working for them contributed to the election of Donald Trump, the popularity of far-right nationalist parties and Brexit.

The economic impact of the pandemic can only exacerbate the divide between the well-educated and relatively well-off, who populate the major cities of Europe and North America, and the undereducated and underemployed, who live paycheck-to-paycheck in smaller cities and towns.

We need a better deal. A new social contract.

Shrinking middle

Read my story from 2016 for details on the hollowing out of the American middle class. I’ll summarize here:

• Only the wealthy have seen their real incomes rise in recent decades.
• Social mobility has declined.
• Traditional middle-income jobs have been outsourced or made redundant by automation.
• Most job growth comes from established businesses, not startups.
• Housing is unaffordable in the very metro areas where the jobs are.
• The costs of child care, health care and higher education have outpaced income growth.
• Nearly one in two Americans couldn’t come up with $400 in an emergency.

Canadians and Europeans have more job security and higher social mobility. Child care, education, health care and housing are more affordable for them. (Which is why I believe the American Dream could use some European inspiration.)

But Canada and Europe have also seen the middle shrink while the tradeoff of security for workers is less economic dynamism. New business ideas and innovations tend to come from America.

Fearful of the future

Majorities of Westerners no longer believe that the next generation will be better off than them.

The old tend to be more pessimistic than the young. (Although that doesn’t stop them from voting for politicians who deny climate change, raise borders and subsidize unprofitable and decaying sectors, like mining and steel, at the expense of the industries of tomorrow.) Traditional and small-town voters are more fearful of the future than progressives and urbanites.

White Christians in America feel they are losing power in a country that is becoming racially and religiously more diverse. Brexiteers looked to Brussels and London with equal suspicion. La France profonde felt wronged when a Socialist government legalized gay marriage in 2013 and wronged again when the big-city liberal Emmanuel Macron won the presidential election in 2017.

Consensus

Americans have for decades accepted weaker social protections and fewer public-sector provisions in return for higher incomes and the opportunity to get rich. Canadians and Europeans have accepted the opposite.

But we have lived under similar economic systems. From the 1930s to the 1970s, that was premised on monolithic (sometimes monopolistic) corporations, strong trade unions, lifetime employment, and health and pension benefits tied to salaried jobs. Americans called this the New Deal consensus. Europeans called it social democracy.

High inflation, high unemployment and the oil crises of the 1970s demanded a change. The 1980s consensus led to deregulation, privatization, lower taxes and free trade. That brought enormous prosperity, including to the post-Soviet economies of Eastern Europe, but it was not the end of history.

The 1980s model is not responsive to the challenges of our time. But let’s not forget why we abandoned the 1930s model. The solution is not to go back in time. We need to take the best of both and add something new.

New social compact

I’m not going to singlehandedly invent a new social model. I’ll borrow from Walter Russell Mead and Dalibor Rohac to give you an outline of where I think we need to go.

I assume that the gig economy is here to stay; that more jobs will — and should be — created in health care, information technology and renewable energy than finance, insurance and oil; and that child care, education, health care and housing should be affordable to all.

1. Make life easier for the entrepreneur. Too many regulations benefit rent-seeking megacorporations at the expense of the small business, from generous copyright protections to occupational licensing requirements. Too often, taxes are higher for businessowners and the self-employed than they are for salaried workers. It should be the other way around. Health insurance should be tax-deductible for all. Self-employed workers shouldn’t have to pay both the employer and employee portions of pension contributors.
2. Consider a universal basic income. If we want people to change jobs easily, and switch from a salaried position to a gig to running a business to going back to a salaried job, it would help if they had a minimum level of income security.
3. Give parents a break. Many parents would like to have more kids but don’t, because it’s too expensive to raise them. America is the only rich nation that does not give mothers and fathers paid time off from work. European countries either subsidize the cost of child care or give parents income-dependent subsidies to pay for it.
4. Seriously, give parents a break. In America, only wealthy parents can help their daughters and son pay for higher education. Students from middle- and low-income families are forced into debt. The country should switch to public funding for universities and trade schools. That will force Ivy League universities, which currently charge their students ten times (!) more than community colleges, to cut costs.
5. Make housing more affordable. In Europe, rent caps and social housing for the poor often leave middle incomes at the mercy of the property market. In America, wealthy neighborhoods with good schools vote against high-rise, in effect locking out aspirational lower-income parents. Renters can be evicted as soon as they miss one payment. On both sides of the Atlantic, regulations should be lifted in one area, to make it easier to build, and strengthened in another, to help middle- and low-income families pay the rent. Joe Biden’s plan to lift the budget cap on housing vouchers is a good place to start.
6. Decouple health care from work. The original sin of the American health care system is that it ties insurance to jobs, which gives employers too much power, discourages workers from changing jobs and distorts the incentives in the insurance market. Insurance companies aren’t bidding for the business of 300+ million consumers. They are bidding for the business of a few big companies. Single-payer systems, like Britain’s and Canada’s, lack competition altogether and with it respect for the individual patient. The better system is Obamacare-for-all, modeled on the Dutch approach: regulated and mandatory private insurance, paid from a combination of insurance premiums and payroll taxes, with subsidies for low incomes, maximum prices for deductibles, co-payments and drugs, and independent doctors and hospitals owned by non-profitmaking institutions, such as city and state governments and health-insurance cooperatives.