Thursday, January 10, 2013

Embracing a bolder vision for our economy

David Frum, who worked for George W. Bush and authored Why Romney Lost, tweeted that the “’real fiscal cliff story” is “how the entire American political class convinced itself that unemployment is no longer worth thinking about.”

Indeed. Although unemployment remains stuck at 7.8% (a far larger percentage is underemployed), and most economists agree that unemployment and lack of purchasing power are the biggest threats to healthy economic growth, there appears to be no stomach for bold visions to put people to work. While the nation’s bridges, roads, sewer systems, gas lines, and power grids are decaying or suffering from severe overload, millions of people are unable to find work. 

Many who do have jobs struggle to support their families on paychecks that have not kept pace with living costs; and workers who are earning good wages now could lose ground as a result of increasing attacks on unions in several states. Since 2009, the federal minimum wage has stood at $7.25. The recent congressional deal reinstated the payroll tax which will take a bite out of even this meager wage.

According to a report last year by the National Low Income Housing Coalition, a full-time worker must earn $18.25 per hour in order to afford rent and utilities on a modest two-bedroom unit without spending more than 30% of income on housing costs. By contrast, the American renter earns, on average, just $14.15 per hour.

Congress has redefined the middle class as individuals earning up to $400,000 – a laughable assumption for the vast majority of Americans. Median household income is $46,000. But we should not be surprised that elected officials are so out of touch with everyday life since 47 percent of House and Senate members are millionaires (67 percent of the Senate).

Although the U.S. prides itself as a classless society, we are becoming stratified according to wealth and are increasingly less mobile than other developed nations. About 62 percent of Americans raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts; and 65 percent born in the bottom fifth stay in the bottom two-fifths.

In September 2010, former Labor Secretary Robert Reich offered some insights into the challenge of recovering from the recession. The real problem, he wrote, has to do with the structure of the economy, not the business cycle. The crisis began decades ago when technology made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. The economy kept growing but hourly wages flattened and the median male worker earns less today, adjusted for inflation, than he did 30 years ago.


Reich continued, “American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

“Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

“When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

“Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades.”

Some observers say that Obama’s Affordable Health Care plan is important, not only because it gives access to health care to millions who are currently uninsured, but because it is may help to reduce the wealth gap. Eduardo Porter wrote in the New York Times on September 25 that the plan, “which levies new taxes on the wealthy to expand access to health care for the near poor, seems on track to become the biggest increase in government redistribution since the Johnson administration.” The Tax Foundation finds that Obamacare will raise taxes by $52,000 on average for families among the top 1 percent of earners in order to finance $250 to $2,000 worth of health benefits for the poorest half of American families by 2016.

But the U.S. must embrace a fundamental restructuring of our economy. Continuing the current race to the bottom in wages is a recipe for becoming a third-rate society. Our political and business leaders as well as every other American must invest in a vision of a high skills, high wage economy. This will mean heavy investment in education at all levels, a vast rebuilding of infrastructure, and a commitment to a fair day’s pay for a fair day’s work.

This will require bold, far-sighted leadership but it should not be a partisan issue. The best of conservative and liberal values are needed. Such a vision would do much to restore trust in America’s social contract. 

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