Falling from the Middle with You

I spend a lot of time writing on US income issues partly because it’s one of those economist things and a lot because I know that so many of us have been struggling since the turn of the century.  Our country’s economic growth has been extremely paltry since 2001. Also, what US growth has occurred has benefited very large corporations and extremely wealthy individuals.  Compounding the issue of low growth is the fact that these very large corporations and extremely wealthy individuals don’t keep their money, their jobs, and their investments in the USA any more.  All of this has led to a very sad situation for the backbone of the historical US economy; the middle class.

Economix blog at the NYT is going to have a series of articles examining the recent fall from grace that we’ve experienced since our economy has morphed into something that focuses its policies on enabling these rich people and huge corporations to abandon our country and our citizens. This first article sums up the problem.  We’ve been progressively giving up Keynesian economics and replacing it with “Supply Side” economics that continues to show opposite results of what’s promised.  Yet, our policy makers scream for more of the same punishment! Our last Keynesian-policy embracing President was probably Richard Nixon. Since then, elements of Supply Side economics have provided terrible results like huge deficits, income inequality, and  the return of financial panics.

First, economic growth in this country has been relatively slow in recent years, which means the total bounty that the American economy produces, to be shared by all of its citizens, has not been growing very rapidly. Even before the financial crisis began in 2008, economic growth in the decade that started in 2001 was on pace to be slower than growth in any decade since World War II.

Then of course came a deep recession that caused the economy to shrink.

In addition to the slow growth in overall size of the pie, the share that has been going to anyone but the richest Americans has been declining. The top-earning 1 percent of households now bring home about 20 percent of total income, up from less than 10 percent 40 years ago. The top-earning 1/10,000th of households — each earning at least $7.8 million a year, many of them working in finance — bring home almost 5 percent of income, up from 1 percent 40 years ago.

In the simplest terms, the relatively meager gains the American economy has produced in recent years have largely flowed to a small segment of the most affluent households, leaving middle-class and poor households with slow-growing living standards.

One of the major things that’s upsetting to me is the absolute denial by the current extremists that have taken over the Republican party is acknowledgement that their policies have caused disaster.  I can’t imagine any one voting for Romney who is pushing these failed policies to the extreme.  Republicans actually think just talking about this problem and the middle class in general is instigating class warfare.  It’s like if we don’t coddle the extremely rich all the time they will throw a hissy fit and the economy will collapse.  This is a proverbial crock of crap and at this point, who cares?  Huge corporations and extremely rich folks like Equity Capital managers don’t create the majority of jobs.  Those come from middle-to-large businesses that operate consistently within the boundaries of our nation.

Speaking on the Senate floor, Kyl claimed that the president’s usage of the phrase “middle class” is “misguided and wrong and even dangerous.” Calling for an end to rhetoric about classes, Kyl blasted Obama for “incessantly” talking about class, “particularly the middle class”:

KYL: Most prominently, we have a president who talks incessantly about class, particularly the middle class. Maybe you’ve noticed that. He defines class strictly by your income. In the president’s narrative, someone who makes $199,000 a year is a member of one class and someone who makes $200,000 belongs to another class. Does that make sense? Indeed, each day the president’s out on the campaign trail championing himself as the great protector of what he calls the middle class and pitting these Americans against their fellow citizens by arguing that the wealthiest class is victimizing them through the tax code.

Again, we can’t talk about our issues as ordinary Americans because no one wants to hear the servants complaining, I guess. We can’t complain when they take national wealth, jobs, and investments out of the country while being subsidized by our tax dollars. Again, I have to argue that Mitt Shady represents everything that’s created this horrible situation. He’s like the poster child for our modern, self-destructive policies.

Phillip Longman characterizes this as a “Hole in our Bucket”.  We’ve blown up just about everything that helps the middle class build wealth recently.  One of the first things that disappeared in the Carter years and Reagan years was our traditional approach to usary laws.  You can read about the history at the link.  However, here’s the impact of that alone.

This short history of usury laws puts into perspective just how bizarre the credit markets of the United States have become over the last forty years. Usury law is, in the words of one financial historian, “the oldest continuous form of commercial regulation,” dating back to the earliest recorded civilizations. Yet starting in the late 1970s, some powerful people decided we could live without it.

First to go were state usury laws governing credit cards. Before 1978, thirty-seven states had usury laws that capped fees and interest rates on credit cards, usually at less than 18 percent. But in 1978 the Supreme Court, in a fateful decision, ruled that usury caps applied only in the state where the banks had their corporate headquarters, instead of in the states where their customers actually lived. Banks quickly set up their corporate headquarters in states that had no usury laws, like South Dakota and Delaware, and thus were completely free to charge whatever interest rates and fees they wanted. Meanwhile, states eager to hold on to the banks headquartered within their borders promptly eliminated their usury laws as well.

Later, in 1996, the Supreme Court handed usurers another stunning victory. In Smiley v. Citibank it ruled that credit card fees, too, would be regulated by the banks’ home states. You might think that market forces would set some limits on how high credit card fees and interest can go—after all, there are only so many creditworthy borrowers, and much competition for their business. But with shrewd use of “securitized” debt instruments and hidden fees, banks and other lenders found they could make more money from those who could not afford credit cards than from those who could.

And this was only the beginning. By the early 2000s, thanks to the combination of deregulation and “financial engineering” on Wall Street, middle- and lower-class neighborhoods across America were being flooded with what could be called financial crack. In the years between 2000 and 2003 alone, the number of payday lenders more than doubled, to over 20,000. Nationwide, the number of payday lender franchisees rivaled that of Starbucks and McDonald’s combined.

If you read this article you will become very aware that the finance industry has created laws and removed laws that has created a situation that has transferred the benefits of traditional savings and borrowing vehicles of the middle class to themselves. This has happened in concert with the decrease in real incomes resulting from corporations moving away from US job sources and huge wealth portfolios disappearing to offshore havens. All this has been enabled by policies that started during the Carter years, went full blast during the Reagan years, continued through the Clinton years, went on steroids during the Bush years, and have basically stayed in place during the Obama years. Most of us have a sense that things have changed.  It’s been a bit like boiling the frog by raising the temperature slowly.  Forty years of policy that favors the global multinational companies and the finance industry coupled with favorable tax treatment for rich individuals has created the hole.  We no longer are assured that good university degrees give us good paying jobs.  We are no longer seeing our 401(k)s and other investment vehicles provide safe, reliable returns and we no longer are assured decent pension or retirement plans.  We also are subject to gaming when we borrow money.  Plus, we have no way to get out from under any of this that blows up on us because bankruptcy laws have also been changed to benefit our creditors.  It’s the perfect storm of reckless policy.  It’s been bought and paid for by lobbyists for the Finance Industries who have been on the leading edge of profiteering too. Top this off with the high cost of health insurance and the ever volatile commodity prices and you’ve got a recipe to kill off the livelihoods of the majority of your population.

Probably the main reason that Romney refuses to share his agenda, his taxes, and anything specific and only touts lies is that he really wants a continuation of this agenda.  His accident of birth has put him in the best of places to be the modern day version of a Pirate of the Caribbean.  Mitt Shady is a privateer. All he does is pound away at the President and try to use rhetorical flourishes that bring back the myth of Reagan.

At Mr. Romney’s pancake breakfast stop, more than a thousand people braved the stormy weather, lining up hours in advance with their umbrellas and waterproof trash bags for protection. Thunder clapped periodically, but when Mr. Romney finally took the stage, the rain slowed to a light spit and the sun crested, prompting him to reflect on the improving weather.

“But it looks like the sun is coming out, and I think that’s a metaphor for the country,” he said. “The sun is coming out, guys! Three and a half years of dark clouds are about to part. It’s about to get a little warmer around this country, a little brighter.”

Whatever this passage indicates about Romney’s rhetorical powers, it really is a pretty accurate reflection of his economic message: relentlessly unspecific, focused on framing the election as an up-or-down referendum on how people feel about Life Under Obama, and implicitly offering himself as a non-ideological Mr. Fix-It whose reassuring presence will make the clouds part. Romney does, of course, have a specific economic agenda, much of it encompassed by his endorsement of the Ryan Budget and his various pledges to reflect his party’s hostility to regulation, progressive taxation, workers’ rights and fiscal or monetary stimulus. But what he seems determined to convey is that there’s a great big confidence fairy in the sky who will make the economy boom at the very sight of his rugged visage and fine posture. And while his weather forecast at the pancake breakfast may not truly be a “metaphor for the country,” it’s definitely the metaphor for his campaign message.

We’re going to have a bottomless bucket if this man is elected and we continue sending Republicans and Democrats to Washington that promote policies that screw over the middle class.  The only politician I know right now that really gets this is Elizabeth Warren. President Obama has been cribbing from her play book.  We can only hope that he actually means it.  We should know that Romney is the poison and not the antidote to what ails us. His vagueness, dodges, and overall shadiness should force every one to buy a clue.