We’re nearing the latest Presidential campaign here in America, and on Control Congress especially, there seems to be a lot of anxiety over economic issues. I share in this anxiety, but my analysis of what plagues us is often very different from John’s and that of other posters. My number one concern heading into 2008 is that distraction will win out once again, as the basic tenets of economic theory go ignored in lieu of things like the debate over immigration. The problem I have with illegal immigration isn’t that it deprives jobs from native Americans, but that it lowers wages across the board. Employing illegal immigrants is a crime, and the risk/reward is such that employers are likely to commit that crime because it benefits them in so many ways. The largest benefit to employers is that they no longer have as many obligations to their labor force as they once did. An illegal worker is someone who is scared, and this reality tilts the scales unfairly towards their employer. When this group is exploited in such a way, it adversely effects the wages paid to legal workers.
Organized labor has been demonized by big business and the political party that represents them, and the laws that protect workers have been diminished or underenforced since the 1980s. No longer is an employer charged with a crime when they fire workers involved in organizing a union. By the same token, workers who might organize and serve as an internal check on a company’s exploitation of undocumented laborers, instead are forced to keep their head down. Meanwhile, the real wage of low income workers has been outpaced by inflation year after year, while the compensation paid to CEOs and other top positions in US corporations has gone from 40 times what a low wage employee earns in the 1970s, to over 550 times that amount in the late 1990s. To compound this problem of inequality, starting in the 1980s, taxes paid by the top 1% of earners has gone down over 50%, while taxes on the middle class have gone up. Look to the incredible growth in debt obligations from 1980 to today, now totaling well over $7 trillion, and only the most intellectually dishonest person capable of operating a calculator will argue that this isn’t a direct result of tax cuts.
Middle class families and low income families spend everything they make, with savings rates at times in negative territory due to the amount of debt each has taken on in order to purchase homes, cars and pay the bills. When the credit dries up, and millions fail to make mortgage payments, lose their jobs or get sick without having insurance, not only do they individually suffer, but their purchasing power is diminished. When wages fail to keep up with inflation, over time people spend less money and drive less. Demand diminishes, supply must react through the elimination of jobs, and GDP growth lags compared with historic periods where the income gap was much smaller. Anyone interested in learning about the effect of the income gap on GDP growth, can focus on the economies of the 1950s and 1960s to get a taste of what I’m laying out here. The American middle class is what made our country’s strength legitimate. Meaning, the economy wasn’t reliant on so much risk, credit, government spending on military production, and two income households.
Conservative economic policies have been given their chance to work since the early 1980s, and when the economy is discussed today, we’re not talking about the income gap, regressive tax policy or the decline of organized labor. Why is that? Certainly these factors have played a large role in reducing the middle class, while also creating the insane amount of debt we are burdened with today. Yet for the most part they go ignored in lieu of immigration or trade policy. It is obvious that both of those issues effect the economy, both with the lowering of wages and the export of manufacturing jobs, but if we continue to act as if those two factors alone have brought us to where we are today, then we’re missing the bigger picture. Not only that, but we’re ignoring the most fundamental truths about supply and demand. Even more importantly, we’re ignoring our own history, and the economic policies from that history which actually worked to the benefit of most Americans. Right now we’re living on borrowed money as a nation, and while wages lag in comparison with inflation and productivity, it is time for all of us to take a look at the arguments put forth in favor of the economic policies of the past 25 years, and honestly evaluate which ones were wrong based on the facts.
I think that regressive taxation and the income gap are two areas that can be fixed through legislation, and without the type of costly police or foreign policy initiatives that could be rolled out with the type of attitude that made our occupation of Iraq such a nightmare. At this point I’m more confident in the not-so-sweet science of economics than I am our ability to affect favorable change through large idealistic initiatives. There are things that can be done, and just because it clashes with the conventional wisdom of political economists (most of whom have been wrong about most things in the past 25 years), they shouldn’t be pushed aside. Let’s expand the arena of economic debate leading in to 2008, and make the case for what can be done at the lowest cost to achieve the highest benefit.
The right wing noise machine has been very successful in selling that tax cuts are the only way to stimulate the economy.
The most recent dust-up between Hillary Clinton and Barrack Obama involved raising the social security cap. Hillary tried to argue that increasing the cap would be unfair to middle class America, I don’t know what the definition of “middle class” is, but I think if you make over $97,500 you are probably upper middle class or maybe even affluent.
If you want to help the majority of average Americans it seems like you will have to raise taxes and improve health care, although on the other side it would be good to stop wasting money on bad ideas like Iraq.
Hillary must be cyborg…because that response is programmed and completely nonsensical. There should be no cap. Having one in the first place means that the burden is unfairly lumped on lower income earners.
If 100% of a poor person’s income is taxed, then 100% of a rich person’s income should be as well.
I’m really past the point where I could ever be enthusiastic about her winning the nomination. I’d have to back away from politics altogether if that happened…since I’m addicted, that would probably never happen…I just hope she doesn’t ruin whatever mandate she receives by keeping the economic policies of the past 25 years in place.
Sounds like she doesn’t have a clue.
Anytime Obama says something that makes sense, like when he suggested it would be good to talk to countries like Iran, she calls him naive. In the end it makes her look like the cyncal conservatives she is trying to replace.
I think Hillary knows that she has a substantial charisma deficit and is trying to make up for it by being smug. Kind of reminds me of Cheney. The only reason I would support Hillary is that her health care policy looks good, although not perfect, and she is certainly smarter than any of the republican candidates.
I agree that the social security tax is a regressive tax. If anything, it should be have a floor, such that it only takes effects above the first $25,000 of income.
Of course, we shouldn’t put a greater tax burden on the middle class than they had to pay back in the 50s, should we? That would be as bad as stagnant wages.
Some good stuff from Megan McArdle on Soc Sec: http://meganmcardle.theatlantic.com/archives/2007/11/the_real_problem.php
1. social security systems seem to exert downward pressure on birthrates, in effect undermining their own actuarial base
2. Social Security also encourages people to leave the workforce earlier than they otherwise would
3. Social Security discourages private savings
4. Social Security is not a productive investment–Social security “contributions” are lent to the government, where they are mostly spent on things that could not be remotely described as improving our economy’s productive capacity, such as farm subsidies
5. If Congress used the Social Security money to reduce other debt; in effect, they would be doing our national saving for us. But in practice, though it is difficult to tease out cause and effect, the best evidence is that Congress simply spends the extra money as if it were tax revenue. Social security thus reduces national savings.
The biggest difference between now and the 1950s is back then the tax rate on earnings over $1 million (adjusted) was 90%. Middle class workers could support a family, own a home and send their kids to college on one income.
the biggest difference between now and the 1950s is the incredible amount of government subsidies flowing to agriculture, health care, and education, the incredible hyperinflation in these sectors, and the incredible increase of real income that middle class families must now pay for healthcare, college, corn, sugar …
if only the government lightened it’s heavy hand in those sectors, like with the telecommunications sector, where a middle class family can afford 7 phones (with wireless and digital features) for the same allocation of middle class income as one (non-wireless non-digital) phone in the 1950s.
I own a small Air conditioning business and is struggling, however I am involved with an Environmently friendly company from Orlando Florida that is helping anyone start up a business with no investment and is working for everyone doing the business. I show it to my friends and family who are struggling and they use the products and save money while helping the Environment, but they are too busy to make money. they spend their time watching TV and has their kids in every sports possible. The middle class is destroying it’S self they don’t need the government’s help doing that. They complain they have no money when I fix their Air. My friend the government is not our friend.
Health care and education are both places where I think government subsidies can help. Education generally makes people more productive and health care is too blind an item not to have
“experts” involved, and the problem with letting doctors police themselves is that they don’t seem to do a very good job.
Saeed:
I agree when you say the middle class is destroying itself, although I disagree as to why, It seems to me that the middle class, or at least a large portion of the middle class lives well beyond their means and finances their lifestyle through equity loans and credit cards, when if people bought slightly smaller houses and cheaper cars they might not be one paycheck away from bancruptcy at all times.
John Rove: So you differ on the distortionary effects of subsidization with Nobelist Stigler? Even with the data on his side?
Subsidies create hyperinflation. Don’t complain about higher prices in healthcare and education–the subsidies are creating the lack of affordability.
Hey CB:
I am not saying the subsidies do not effect the economy, of course they do, I am saying that the at least some of the problems afflicting the middle class, ar brought on by middle class itself, and certain high expense items that people seem to feel they “need”
Awhile back I tried to do a blog post about this, where I was going to talk about my experience shopping for a house and the pressure I felt to buy a bigger house than I could really afford, and some of the dogmas that lead people to buy too much house and wind up one pay-check away from foreclosure. The idea being that a person is better to live a little below their means than above it, but that does not seem to be the American way.
Another factor in the fragility of the middle class are student loan payments, at my last job I was the only person who did not have a student loan to repay, and when I was leaving several people who had started when I did indicated that they would be on their way out the door as well if they did not need to repay these loans.
Several chioces that people automaticaly make like the decision to take out large student loans, have large families, or buy large houses can all have a very bad effect on a persons well being, in each of those cases it locks you into a lifestyle that may not be for everyone. Yet people do them all the time. My point is maybe people need to re-think what they value and it might improve their lives.
John Rove, I agree with everything in your last comment. Nice. I hope this means that the Pats-Jets score ends up around 49-0.
I don’t know what the NFL record is for points in a game but I am sure the Pats are going to try to break it this weekend.