For People Who Think

December 6, 2009

Democrats…Wake UP & Save Middle Class America

Filed under: Uncategorized — 4peoplewhothink @ 7:09 pm

Imagine that you’re stuck in a bog of quicksand. You’re sinking at a nerve-jangling rate. Then the quicksand beneath your feet begins to harden up. You’re still sinking, but not as quickly. Would that circumstance prompt you simply to relax and stay where you are? Or would you make a heroic effort to pull yourself out of that bog?

That’s where we are in this country with regard to unemployment. The national unemployment rate edged down to 10 percent in November from 10.2 percent the month before. Non-farm payrolls fell by just 11,000, the Labor Department said Friday, compared to an average of 135,000 jobs lost every month for the past few months and 600,000 lost back in January. That’s a sign that employers are starting to throw workers overboard at a slower rate, and that’s good.

Here’s the rest of the picture, though. This country has about 15.5 million people out of work. About 6 million of those people have been out of work for 27 weeks or more. From the standpoint of politics, all this indicates that Democrats may be headed for some serious butt-kicking in the 2010 congressional elections. The Cook Political Report, generally considered the most respected observer of congressional races, recently gave Republicans a 35%-40% chance of recapturing both Houses. The likely forecast, even if the job picture gets radically better in 2010 – which nobody deems likely – is that the Democrats probably will retain only a 10-15 seat majority in the House and a five seat margin in the Senate. Only one in four Americans approves of this Democratic-controlled Congress, according to the latest Gallup poll. That’s the same low level of three years ago, just before control of both Houses shifted from Republicans to Democrats.

What this means – politically, at least – is that the Democrats had better begin to provide some serious new incentives for job creation and bank lending as they also put forth more detailed and forceful commitments to deficit reduction and a more forceful stance towards Wall Street. Doing nothing further in any of these areas is not good enough when Goldman Sachs forecasts just 2% real economic growth for 2010 and when the Federal Reserve staff projects just 2.8% improvement. That’s just not enough growth to meaningfully lower the sky-high 10 per cent unemployment rate and the 17 per cent underemployment rates we’re suffering today.

A recovery that weak reflects the troubled financial condition of households and the American banking system. For households, this manifests itself in the rising personal savings rate. It’s now up to 5% from zero just a year ago, as households reduce spending and pay down debt. It also reflects dismal consumer confidence levels. None of this bodes well for consumer spending, which represents 70% of our GDP. Total business credit outstanding has declined for 11 consecutive months. With both bank lending and consumer spending so pallid, the party in power simply must take action to spur both lending and employment.

The first priority has to be fast-acting incentives to create jobs. I like the idea of either direct subsidies to employers to hire, as the Germans have done, and/or a new jobs tax credit — maybe a $5,000 employer credit for each job created over its current baseline employment. Over two years, that could create up to 1.5 million jobs, according to the experts. The Democrats also need to create a temporary mechanism for guaranteeing business loans, perhaps in the form of some sort of insurance policy administered through the Federal Deposit Insurance Corporation, so that they can be securitized and sold.

The consequences of refusing to take action of this sort go beyond the political. We now live in a country where one in five Americans is unemployed or underemployed. One in nine families can’t make the minimum payments on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans – and one in four children — is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings. Overall, it has reduced American wealth by $12 trillion.

Middle-class Americans have been falling behind economically for decades. We’ve gone from the 1960s, when median family income jumped by 33% adjusted for inflation, to the first decade of the 21st Century, when the typical family has seen an adjusted income increase of just 1.6%. The rich have gotten richer, the poor have gotten poorer and the middle class has shrunk as too many working families were unable to hold it all together. By the early 2000s, families were spending twice as much adjusted for inflation on mortgages as they did a generation before, and they were paying that high price for a house that was, on average, only 10 percent bigger and 25 years older. They also had to pay twice as much for their health insurance. Meanwhile, the wages of the average fully-employed male have been flat since the 1970s. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and some other items, but middle-class families have over the past few decades spent all their savings – or lost them in stock market crashes — and have gone deeply into debt to pay for college, to cover serious medical problems and just to keep their heads above water for another week, another month.

Now, with slow economic growth predicted with sky-high unemployment rates, the very existence of the American middle class – its long-term survival — is threatened. The small holes in the boat have grown into gaping fissures, with water gushing in at a snappy rate, and the politicians are spending their time snapping at one another rather than working together to solve the real problems affecting real people.

Meanwhile, the financial industry grew fabulously prosperous by selling debt to middle class families who could no longer afford to pay cash. At the same time the banks have brought in hundreds of billions of dollars in fees made possible by deceptive terms buried in the fine print of incomprehensible credit contracts. And when “creative banking” triggered a full-blown economic crisis, the bankers rushed to Washington with their hands out. They were bailed out with tax dollars that came largely from people struggling desperately to make ends meet. And, all the while, the big wheels at those banks kept their jobs and retained their staggering bonuses.

Regardless of what the politicians and the Wall Street bankers seem to think, people aren’t stupid. Yes, they’re angry, but more than that, they’re scared, and with good reason. They understand that the rules they’ve played by don’t apply to Wall Street bankers in $2,000 suits. They understand that no politician views any American family as too big to fail. They recognize that their economic security – the very way of life of people who fight to pay bills every month, instead of having their accountants pay them quarterly — is under ferocious assault.

The America of 2009 has plenty of rich and super-rich, but it has far more families who did all the right things and who understand that without jobs they and their children will never enjoy decent educations, meaningful work, economic security or the prospect of even a few years of retirement. Tens of millions of once-secure middle class families now watch as their debts pile up and lie awake at night fretting over whether a pink slip or a bad medical diagnosis will reduce their lives to rubble.

Plenty of direct job creation could be done. Along with the new business tax credit for hiring the government also could give money to states and cities to hire people to paint schools, board up vacant homes, staff child-care centers and reopen library branches. The estimated cost: $35 billion for a year – or, to put it another way, the slightly lower price than sending 30,000 troops to Afghanistan. The government could pay people lower-than-market wages, maybe $8 an hour, and reserve the jobs for those who really can’t find better work. Instead of extending unemployment benefits over and over, the government could help people develop job skills that would give taxpayers something in return. The experts estimate that the cost of this would be about $30,000 for each job created, compared with the $92,000 per job that the White House estimates its approach under the current stimulus law is costing. And taxpayers would be able to see clearly that the spending was putting people to work — instead of questioning, as many are now doing, the reliability of the job totals that the White House is attributing to the stimulus.

We did this sort of thing in the 1930s with the Works Progress Administration, launched in 1935, and the Civilian Conservation Corps, which put unemployed people to work building trails, fighting forest fires and so on. We have a history of finding ways to help people who’ve been knocked down by the economy get back on their feet. The question is whether we now have the political will to make it happen. I don’t know the answer to that.

This much I do know: Unless the politicians get serious about job creation the middle class – and all those worthy middle-class values that have shaped American society – will continue to erode. We’ll end up with more out-of-wedlock babies, more crime, more drug use and more underclass pathological misery for as far down the road as any of us can see in an increasingly competitive world economy. What’s at stake in this glacier-slow recovery with high unemployment is the very fabric of American society, which is shredding at a breakneck pace.

It’s hard to imagine how any politician with any speck of decency could find any more important purpose for the money we’re borrowing from the Chinese.
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