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Earlier 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 continued decline.

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 most:

CREATING 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 nurse.

STOPPING 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 discrepancies.

RAISING 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 multimillionaires.

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 wealthy.

The Middle-Class Agenda,
NYT,
19.12.2011,
http://www.nytimes.com/2011/12/20/
opinion/the-middle-class-agenda.html

The Poor, the Near Poor and You

November 23, 2011

The New York Times

What is 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,
NYT, 23.11.2011,
http://www.nytimes.com/2011/11/24/
opinion/the-poor-the-near-poor-and-you.html

The Limping Middle Class

September 3, 2011

The New York Times

By ROBERT B. REICH

Robert B. Reich is the former secretary of labor, a professor at the University of California, Berkeley, and the author of “Aftershock: The Next Economy and America’s Future.”

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 unequal.

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 all boats.

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 downturns.

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 additional money.

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 transportation.

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 from growth.

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 exporter.

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,
NYT,
3.9.2011,
http://www.nytimes.com/2011/09/04/
opinion/sunday/jobs-will-follow-a-strengthening-of-the-middle-class.html

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