Economy > The middle
The St. Louis Post Dispatch
18 July 2011
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The St. Louis Post Dispatch
9 November 2011
The New York Times
this month, President Obama delivered his first unabashed 2012 campaign speech.
Unlike his opponents, Mr. Obama acknowledged the ravages of income equality, the
hollowing out of the American middle class. There is no hyperbole in the urgency
he conveyed about “a make-or-break moment for the middle class, and for all
those who are fighting to get into the middle class.”
The challenge for Mr. Obama is to translate the plight of the middle class into
an agenda for broad prosperity. Congress’s inability to cleanly extend even
emergency measures though 2012 — including the temporary payroll tax cut and
federal unemployment benefits — underscores the difficulty. The alternative is
Recent government data show that 100 million Americans, or about one in three,
are living in poverty or very close to it. Of 13.3 million unemployed Americans
now searching for work, 5.7 million have been looking for more than six months,
while millions more have given up altogether. Even a job is no guarantee of
middle-class security. The real median income of working-age households has
declined, from $61,600 in 2000 to $55,300 in 2010 — the result of abysmally slow
job growth even before the onset of the recession.
Economic growth alone, even if it accelerated, would not be enough to restore
the middle class. Mr. Obama refuted the Republican notion that market forces
alone can ensure broad prosperity, when the economic health of American families
also depends on government action.
It was a speech that called out for a plan. Here are the elements that matter
GOOD JOBS Despite Republican obstructionism, Mr. Obama must continue to offer
stimulus bills that include spending for public works, high-tech manufacturing
and an infrastructure bank. He must stress that obstruction costs jobs — the
bill recently filibustered by Republicans would have created an estimated 1.9
million jobs in 2012. The Republican stance also endangers future prosperity by
denying needed infrastructure upgrades and making it likely that international
competitors will outstrip America in jobs and technology.
In particular, Mr. Obama needs to debunk the notion that job creation is at odds
with environmental protection. Republicans have portrayed opposition to the
Keystone XL oil pipeline as a job killer. The truth is, oil addiction and the
failure to invest in new energy sources will be far bigger job killers. What’s
needed is a plan to create millions of clean energy jobs and to link those jobs
to workers in fossil fuel industries who otherwise would be displaced. The
climate bill that died in 2010 would have begun that transformation; the need to
try again only becomes more pressing with each passing year.
At the same time, Mr. Obama cannot ignore that most of the fast-growing
occupations in America are lower-paying service jobs, like home health care and
food service, in which it’s all but impossible to make a living. To lift wages
requires generous tax credits for low earners, a higher minimum wage, and
guaranteed health care so that wages are not consumed by medical costs. Job
training efforts must also focus on the service sector, helping to build
so-called career ladders, say, from home health aid to licensed vocational
FORECLOSURES In his Kansas speech, Mr. Obama said banks “should be working to
keep responsible homeowners in their homes.” That’s too weak. The banks have
never made an all-out effort to help homeowners and unless compelled to do so,
they never will, because, in many cases, they can make more by foreclosing
rather than by modifying troubled loans.
Federal agencies can keep working with some state attorneys general and try to
settle with banks over foreclosure abuses in exchange for a commitment from them
to modify some $20 billion worth of troubled loans, or they can conduct a
thorough federal investigation into the banks’ conduct during the mortgage
bubble, looking for a far bigger settlement. The market is beset with $700
billion of negative equity; potential bank abuses are unexplored; the public is
demanding accountability. Mr. Obama should opt for a thorough federal inquiry.
In the meantime, an antiforeclosure plan that is up to the scale of the problem
would include unrelenting political pressure for principal write-downs of
underwater loans, expanded refinancings for borrowers in high-rate loans, and
forbearance for unemployed homeowners.
REGULATING THE BANKS Mr. Obama said banks are fighting the Dodd-Frank reform
“every inch of the way.”
The question is what he will do to fight back. A good start would be for him to
tell the American public whether the law is capable of performing as intended.
Is he confident that a major bank on the verge of failure could be successfully
dismantled? Is he sure that risky bank trading will be sufficiently curtailed?
If he is not confident that the law can work as intended, he must ensure better
implementation or call for a revamp of the statute itself.
He can also personally advance specific Dodd-Frank provisions. Republicans are
intent on destroying the new Consumer Financial Protection Bureau; Mr. Obama
should try to recess appoint his nominee to lead the bureau, Richard Cordray,
whom Republicans recently filibustered. Mr. Obama must make clear that he
supports a strong Dodd-Frank disclosure rule on the ratio of the pay of chief
executives to that of rank-and-file employees. Such disclosure is crucial to
changing the corporate norms that have allowed for unjustifiably vast pay
TAXES, REDUCING THE DEFICIT Tax reform is essential. But there is no way to
build public consensus for broad reform without first reversing the lavish tax
breaks for the rich. In addition to letting the high-end Bush-era tax cuts
expire at the end of 2012, Mr. Obama could call for all forms of income to be
taxed at the same rates, rather than allowing lower rates for investment income,
which flows mostly to wealthy Americans. Income tax rates also need to be
adjusted at the top of the scale, so that the affluent, say, couples with
taxable income of $400,000 a year, are not paying the same top rate as
Mr. Obama should also drop his opposition to a financial transactions tax. That
stance may have made sense when the banks were reeling from the financial
crisis, but it is now at odds with a stated desire to rein in the financial
sector and raise needed revenue.
Mr. Obama has more than established his willingness to cut the deficit, agreeing
to spending cuts that, in fact, are too deep for the weak economy. Now he needs
to dominate the deficit debate, not by trying to meet Republican demands for
ever more spending cuts, but by explaining that more cuts would undermine the
recovery. In the near term, high-end tax increases are a better way to control
the deficit. They are less of a drag on economic activity than broad tax
increases or federal spending cuts.
More jobs. Fewer foreclosures. Less financial risk. Progressive taxation. Those
policies will give the middle class a fighting chance. But the list is not
exhaustive. The pillars of a healthy middle class also include public education,
Social Security, unions, child care, affirmative action and, not least, campaign
finance reform, since inequality is reinforced by the political power of the
The Middle-Class Agenda,
Poor, the Near Poor and You
The New York Times
it like to be poor? Thankfully, most Americans do not know, at least not
firsthand. And times are tough for the middle class. But everyone needs to
recognize a chilling reality: One in three Americans — 100 million people — is
either poor or perilously close to it.
The Times’s Jason DeParle, Robert Gebeloff and Sabrina Tavernise reported
recently on Census data showing that 49.1 million Americans are below the
poverty line — in general, $24,343 for a family of four. An additional 51
million are in the next category, which they termed “near poor” — with incomes
less than 50 percent above the poverty line.
As for all of that inspirational, up-by-their-bootstrap talk you hear on the
Republican campaign trail, over half of the near poor in the new tally actually
fell into that group from higher income levels as their resources were sapped by
medical expenses, taxes, work-related costs and other unavoidable outlays.
The worst downturn since the Great Depression is only part of the problem.
Before that, living standards were already being eroded by stagnating wages and
tax and economic policies that favored the wealthy.
Conservative politicians and analysts are spouting their usual denial. Gov. Rick
Perry and Representative Michele Bachmann have called for taxing the poor and
near poor more heavily, on the false grounds that they have been getting a free
ride. In fact, low-income workers do pay up, if not in federal income taxes,
then in payroll taxes and state and local taxes.
Asked about the new census data, Robert Rector, an analyst at the conservative
Heritage Foundation told The Times that the “emotionally charged terms ‘poor’ or
‘near poor’ clearly suggest to most people a level of material hardship that
doesn’t exist.” Heritage has its own, very different ranking system, based on
households’ “amenities.” According to that, the typical poor household has
roughly 14 of 30 amenities. In other words, how hard can things be if you have a
refrigerator, air-conditioner, coffee maker, cellphone, and other stuff?
The rankings ignore the fact that many of these are requisites of modern life
and that things increasingly out of reach for the poor and near poor —
education, health care, child care, housing and utilities — are the true
determinants of a good, upwardly mobile life.
Government surveys analyzed by the Center on Budget and Policy Priorities
indicate that in 2010, just over half of the country’s nearly 17 million poor
children, lived in households that reported at least one of four major
hardships: hunger, overcrowding, failure to pay the rent or mortgage on time or
failure to seek needed medical care. A good education is also increasingly out
of reach. A study by Martha Bailey, an economics professor at the University of
Michigan, showed that the difference in college-graduation rates between the
rich and poor has widened by more than 50 percent since the 1990s.
There is also a growing out-of-sight-out-of-mind problem. A study, by Sean
Reardon, a sociologist at Stanford, shows that Americans are increasingly living
in areas that are either poor or affluent. The isolation of the prosperous, he
said, threatens their support for public schools, parks, mass transit and other
investments that benefit broader society.
The poor do without and the near poor, at best, live from paycheck to paycheck.
Most Americans don’t know what that is like, but unless the nation reverses
direction, more are going to find out.
The Poor, the Near Poor and You,
Limping Middle Class
The New York Times
By ROBERT B. REICH
Reich is the former secretary of labor, a professor at the University of
California, Berkeley, and the author of “Aftershock: The Next Economy and
THE 5 percent of Americans with the highest incomes now account for 37 percent
of all consumer purchases, according to the latest research from Moody’s
Analytics. That should come as no surprise. Our society has become more and more
When so much income goes to the top, the middle class doesn’t have enough
purchasing power to keep the economy going without sinking ever more deeply into
debt — which, as we’ve seen, ends badly. An economy so dependent on the spending
of a few is also prone to great booms and busts. The rich splurge and speculate
when their savings are doing well. But when the values of their assets tumble,
they pull back. That can lead to wild gyrations. Sound familiar?
The economy won’t really bounce back until America’s surge toward inequality is
reversed. Even if by some miracle President Obama gets support for a second big
stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither
will do the trick without a middle class capable of spending. Pump-priming works
only when a well contains enough water.
Look back over the last hundred years and you’ll see the pattern. During periods
when the very rich took home a much smaller proportion of total income — as in
the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster
and median wages surged. We created a virtuous cycle in which an ever growing
middle class had the ability to consume more goods and services, which created
more and better jobs, thereby stoking demand. The rising tide did in fact lift
During periods when the very rich took home a larger proportion — as between
1918 and 1933, and in the Great Regression from 1981 to the present day — growth
slowed, median wages stagnated and we suffered giant downturns. It’s no mere
coincidence that over the last century the top earners’ share of the nation’s
total income peaked in 1928 and 2007 — the two years just preceding the biggest
Starting in the late 1970s, the middle class began to weaken. Although
productivity continued to grow and the economy continued to expand, wages began
flattening in the 1970s because new technologies — container ships, satellite
communications, eventually computers and the Internet — started to undermine any
American job that could be automated or done more cheaply abroad. The same
technologies bestowed ever larger rewards on people who could use them to
innovate and solve problems. Some were product entrepreneurs; a growing number
were financial entrepreneurs. The pay of graduates of prestigious colleges and
M.B.A. programs — the “talent” who reached the pinnacles of power in executive
suites and on Wall Street — soared.
The middle class nonetheless continued to spend, at first enabled by the flow of
women into the work force. (In the 1960s only 12 percent of married women with
young children were working for pay; by the late 1990s, 55 percent were.) When
that way of life stopped generating enough income, Americans went deeper into
debt. From the late 1990s to 2007, the typical household debt grew by a third.
As long as housing values continued to rise it seemed a painless way to get
Eventually, of course, the bubble burst. That ended the middle class’s
remarkable ability to keep spending in the face of near stagnant wages. The
puzzle is why so little has been done in the last 40 years to help deal with the
subversion of the economic power of the middle class. With the continued gains
from economic growth, the nation could have enabled more people to become
problem solvers and innovators — through early childhood education, better
public schools, expanded access to higher education and more efficient public
We might have enlarged safety nets — by having unemployment insurance cover
part-time work, by giving transition assistance to move to new jobs in new
locations, by creating insurance for communities that lost a major employer. And
we could have made Medicare available to anyone.
Big companies could have been required to pay severance to American workers they
let go and train them for new jobs. The minimum wage could have been pegged at
half the median wage, and we could have insisted that the foreign nations we
trade with do the same, so that all citizens could share in gains from trade.
We could have raised taxes on the rich and cut them for poorer Americans.
But starting in the late 1970s, and with increasing fervor over the next three
decades, government did just the opposite. It deregulated and privatized. It cut
spending on infrastructure as a percentage of the national economy and shifted
more of the costs of public higher education to families. It shredded safety
nets. (Only 27 percent of the unemployed are covered by unemployment insurance.)
And it allowed companies to bust unions and threaten employees who tried to
organize. Fewer than 8 percent of private-sector workers are unionized.
More generally, it stood by as big American companies became global companies
with no more loyalty to the United States than a GPS satellite. Meanwhile, the
top income tax rate was halved to 35 percent and many of the nation’s richest
were allowed to treat their income as capital gains subject to no more than 15
percent tax. Inheritance taxes that affected only the topmost 1.5 percent of
earners were sliced. Yet at the same time sales and payroll taxes — both taking
a bigger chunk out of modest paychecks — were increased.
Most telling of all, Washington deregulated Wall Street while insuring it
against major losses. In so doing, it allowed finance — which until then had
been the servant of American industry — to become its master, demanding
short-term profits over long-term growth and raking in an ever larger portion of
the nation’s profits. By 2007, financial companies accounted for over 40 percent
of American corporate profits and almost as great a percentage of pay, up from
10 percent during the Great Prosperity.
Some say the regressive lurch occurred because Americans lost confidence in
government. But this argument has cause and effect backward. The tax revolts
that thundered across America starting in the late 1970s were not so much
ideological revolts against government — Americans still wanted all the
government services they had before, and then some — as against paying more
taxes on incomes that had stagnated. Inevitably, government services
deteriorated and government deficits exploded, confirming the public’s growing
cynicism about government’s doing anything right.
Some say we couldn’t have reversed the consequences of globalization and
technological change. Yet the experiences of other nations, like Germany,
suggest otherwise. Germany has grown faster than the United States for the last
15 years, and the gains have been more widely spread. While Americans’ average
hourly pay has risen only 6 percent since 1985, adjusted for inflation, German
workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of
German households now take home about 11 percent of all income — about the same
as in 1970. And although in the last months Germany has been hit by the debt
crisis of its neighbors, its unemployment is still below where it was when the
financial crisis started in 2007.
How has Germany done it? Mainly by focusing like a laser on education (German
math scores continue to extend their lead over American), and by maintaining
strong labor unions.
THE real reason for America’s Great Regression was political. As income and
wealth became more concentrated in fewer hands, American politics reverted to
what Marriner S. Eccles, a former chairman of the Federal Reserve, described in
the 1920s, when people “with great economic power had an undue influence in
making the rules of the economic game.” With hefty campaign contributions and
platoons of lobbyists and public relations spinners, America’s executive class
has gained lower tax rates while resisting reforms that would spread the gains
Yet the rich are now being bitten by their own success. Those at the top would
be better off with a smaller share of a rapidly growing economy than a large
share of one that’s almost dead in the water.
The economy cannot possibly get out of its current doldrums without a strategy
to revive the purchasing power of America’s vast middle class. The spending of
the richest 5 percent alone will not lead to a virtuous cycle of more jobs and
higher living standards. Nor can we rely on exports to fill the gap. It is
impossible for every large economy, including the United States, to become a net
Reviving the middle class requires that we reverse the nation’s decades-long
trend toward widening inequality. This is possible notwithstanding the political
power of the executive class. So many people are now being hit by job losses,
sagging incomes and declining home values that Americans could be mobilized.
Moreover, an economy is not a zero-sum game. Even the executive class has an
enlightened self-interest in reversing the trend; just as a rising tide lifts
all boats, the ebbing tide is now threatening to beach many of the yachts. The
question is whether, and when, we will summon the political will. We have
summoned it before in even bleaker times.
As the historian James Truslow Adams defined the American Dream when he coined
the term at the depths of the Great Depression, what we seek is “a land in which
life should be better and richer and fuller for everyone.”
That dream is still within our grasp.
The Limping Middle Class,
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