Struck in the Middle

iVillage Member
Registered: 03-18-2000
Struck in the Middle
10
Tue, 08-09-2011 - 1:04pm

What is it going to take to turn things around? Why are politicians more beholden to Wall Street & large corporations than ordinary people.

http://www.time.com/time/subscriber/article/0,33009,2086853,00.html

Economic research shows that people who feel they are becoming better off over time are more generous, altruistic and participatory. No wonder, then, that the Great Recession and limp recovery of the past three years have given us something as pinched and polarizing as Tea Party politics. The debt-reduction deal that was cut after many weeks of partisan wrangling may have temporarily saved the U.S. from default. But it has exacerbated the real problem underlying our woes: the fact that most people not only feel but actually are much worse off than they were three years ago.

While the income share of the nation's top 1% is hovering around 20%--near what it was in the Gilded Age and up from about 8% in the 1970s--the rest of us haven't gotten a raise in nearly four decades. The wealth gap between whites and blacks is now a chasm: according to a Pew study, the median wealth of white households is now 20 times that of black households, making the gap nearly twice the size it was in the two decades before the Great Recession. Such inequality isn't new, but it's a problem that has been greatly aggravated by the financial crisis, which wiped out the housing wealth of the middle classes even as the richest Americans saw their stock portfolios rebound and their highly paid jobs remain relatively secure.

The debt-reduction deal guarantees that the gap will widen, perhaps dramatically. First, it cuts government spending at a time when spending is needed most. The economy is weak, and the private sector is still hoarding its cash. This, along with the fear that we'll have to go through the same charade every few months or years, has economists downgrading their already low growth forecasts, making a reality of the much feared 2% economy--one in which a few highly skilled workers prosper and the vast middle flounders. "The debacle has eroded corporate, household and investor confidence," says Mohamed El-Erian, CEO of Pimco. "It will translate into lower U.S. economic growth, higher unemployment and more volatile and fragile markets."

What's more, the particulars of the deal favor the rich, since the wealthy escape new taxes and the poor get the spending ax in the back in the form of reduced unemployment benefits, public-sector-job elimination and no increases in spending on programs that might bolster employment or help retrain workers. "It is hard to shrink the size of government right now without exacerbating inequality," says Harvard economist Ken Rogoff, co-author of This Time Is Different, a history of debt crises.

While this is depressing enough, what's really disturbing and not nearly well enough understood is that inequality is a cause, not just a symptom, of the current crisis. By legislating an increase in the wealth gap, we are actually compounding our economic woes, because those in the lower 95% of the population, which does 71% of the spending, simply aren't going to have any cash on hand, nor can they borrow. "High levels of inequality depress longer-term growth by depressing more broad-based consumption. You end up with a lot going on at Walmart and Nordstrom without enough going on in the middle," notes Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. You also end up with curtailed retail-employment growth, which will ensure that unemployment, at record highs for this stage of a "recovery," will inch higher.

What's interesting is that if we had done more to prevent inequality, we might not have ended up where we are. A recent report from the IMF looked at the causes of the two major U.S. economic crises over the past 100 years--the Great Depression of 1929 and the Great Recession of 2007. There are two remarkable similarities in the eras that preceded these crises: both saw a sharp increase in income inequality and household-debt-to-income ratios. In each case, as the poor and the middle classes were squeezed, they tried to cope by borrowing to maintain their standard of living. The rich, in turn, got richer by lending and looked for more places to invest, bidding up securities that eventually exploded in everyone's face.

In both eras, financial deregulation and loose monetary policy played roles in creating the bubble. But inequality itself--and the political pressure not to reverse it but to hide it--was a crucial factor in the meltdown. The shrinking middle isn't a symptom of the downturn. It's the source of it. How we deal with it may become the most crucial factor in whether we can hope for a lasting recovery.

 


Photobucket&nbs

iVillage Member
Registered: 11-27-2009
Tue, 08-09-2011 - 1:45pm
To answer the first question, "what is it going to take to turn things around?"
How about an honest assessment of what got us here in the first place.
Hint: Bush didn't do it alone and it didn't all happen during Bush's tenure. To continue to push that rhetoric from Washington is irresponsible and sends me the message that they have no solutions and really no idea of what to do, so...blame Bush. (I know that is not what is in this post, but it does dominate what is coming from the left, on this board and in the political world)
Here's an interesting article comparing the what happening in '08 and what is happening now. I think we need more honest assessment like this, acknowledging the source of the problems.
There will always be financial inequality. I will never make a million a year, some will never make $100,000 a year. I think we need to stop with class warfare and focus on the problems.
iVillage Member
Registered: 11-27-2009
Tue, 08-09-2011 - 1:51pm
A second step to the question is to honestly assess what interventions and what policies helped or hurt the situation and act from there. Neither party is willing to do that and accept responsibility for a policy that failed. What they fail to consider is that a policy may be successful under one set of circumstances and not under another.
It serves no one to ignore that there are multiple factors that contribute to economic health. It serves no one to ignore that the government cannot control all those factors. It only serves to hurt us all when the economy hits a down cycle, and the economy will do that, it cannot always be on an upswing. The trick is knowing when to intervene and when to sit back. Unfortunately our leaders are all so full of themselves they believe that they can do anything.
iVillage Member
Registered: 03-18-2000
Tue, 08-09-2011 - 4:19pm

Here's a good article. I'll post the entire thing even though it's long, otherwise, one cannot access it unless you're a subsciber.

The Debt Deal's Failure

http://www.time.com/time/subscriber/article/0,33009,2086858,00.html

In narrow economic terms, the debt deal is actually not a big deal, neither as good as its advocates claim nor as terrifying as its opponents fear. The actual cut to the 2012 budget, the only budget over which this Congress has control, is $21 billion out of total expenditures of $3.7 trillion--a pittance. Everything else can and will be changed by future Congresses. What the deal does is kick tough choices down the road, this time to a congressional supercommission that will have to come up with a larger plan to reduce debt. And it does nothing to spur growth, without which the debt will expand well above projections. That's why the usually circumspect Mohamed El-Erian, head of Pimco, the world's largest bond fund, grades the deal somewhere between an incomplete and a fail. "Other than eliminating default risk emanating from a self-manufactured crisis," he writes, "there is nothing good about America's debt ceiling debacle."

The deal's largest impact will be political, and there it has been a disaster. The manner in which it was produced added poison to an already toxic atmosphere in Washington, making compromise even more difficult. Democrats now feel they need to mirror the Tea Party's tactics and are becoming unyielding on any cuts to entitlement programs like Medicare. Republicans, emboldened by the success of their bullying, have closed ranks more solidly around a no-tax agenda. But the only solution to America's debt dilemma will need to involve both cuts to entitlement programs and higher tax revenues. Even if the besmirched ratings agencies don't downgrade America, we've downgraded ourselves. The system did not work.

Evidence of a working system would have been the adoption of a grand bargain almost forged between President Obama and House Speaker John Boehner to reduce the budget deficit by almost $4 trillion over 10 years, a plan that might actually have been enforced, because both parties would have been invested in it, each having contributed to shaping it. The system would have worked if it had adopted some version of the Bowles-Simpson plan, which reduces the national debt by the same amount, with pain on both sides of the aisle, but in an even smarter way. This is how Congress used to work: grand bipartisan bargains to solve difficult problems with compromises by both sides. This is not nostalgia. It is how the system worked in the 1980s and '90s to save Social Security, reform the tax code, rationalize immigration policy and close hundreds of military bases.

Instead, we have demonstrated to ourselves, the world and global markets that our political system is broken and that we are incapable of conceiving and implementing sensible public policy. What we have instead is the prospect of more late-night cliff-hangers, extreme tactics, budget guillotines, filibusters and presidential vetoes. It makes for good TV news specials, but it is a sorry picture of how the world's leading country governs itself.

There is one silver lining. The sword of Damocles that hangs over Congress (steep reductions in defense and Medicare if the two sides can't agree to a basket of other cuts) is supposed to make legislators act more sensibly. Actually, it might provoke something more important: a national debate on the role of government. This might well have been Obama's calculation and his purpose in accepting the debt deal--that it would end the crisis, in which the Tea Partyers held the country's creditworthiness hostage to their agenda, and force a broader national discussion, one he is comfortable leading. If so, such a debate is long overdue. For more than a generation, Americans have delayed it, at incalculable cost to the country.

The modern seesaw about the role of government began with Ronald Reagan, who rode to the White House in 1980 on a tide of frustration with high taxes and big government. He promised to cut both down to size. He succeeded with taxes, reducing rates across the board and closing loopholes. Although he raised taxes several times during his presidency, by the time he left office in 1989, taxes were at 18% of GDP, down from about 20%.

But what he did not do was cut spending consistently. Spending under Reagan averaged 22.4% of GDP, well above the 1971--2009 average of 20.6%. Yes, much of this was for defense, but almost everything went up during his Administration. Farm subsidies, for example, rose 140%. If you lower taxes and don't trim expenses, there is only one way to make up the difference: by borrowing. The national debt tripled, from $712 billion in 1980 to $2 trillion in 1988.

Reagan reflected the American public's basic preferences. We want big government but low taxes. The only way to make this work, short of magic, is debt. And government at every level--state, city and local--followed this pattern and took on ever increasing amounts of debt. In fact, because of weak accounting requirements, politicians at the state level have even resorted to a kind of budgetary magic to satisfy key constituencies. When public-sector employees want pay raises, politicians provide just modest step-ups in salary but huge increases in pension and retirement health care benefits. That way, the (fraudulent) budget numbers don't look that bad until years later, when the politicians who did the damage have safely retired.

Over the past three decades, this pattern has persisted, with a few exceptions at the federal level. Tax hikes and spending restraint under George H.W. Bush and even more so under Bill Clinton brought the problem under control and in the late Clinton years even produced a budget surplus. Then came the George W. Bush tax cuts, expanded health care benefits and two wars--all unpaid for--without any tax increases. The result: the surplus disappeared, and by 2008, the debt had ballooned to $5.8 billion. The final blow was the financial crisis and recession, which meant that federal tax revenues collapsed, followed by more tax cuts and stimulus spending. The debt rose to its current $14.3 trillion.

We couldn't be grappling with this at a worse time. Many economists believe that the economy is fragile and that it would be better not to cut spending or raise taxes at this point. It's true. The sensible economic policy would be more stimulus now and major deficit reduction in a few years. But that kind of smart, sequenced public policy is simply beyond the reach of the American system today.

So far, the national debate has been built around the fantasy that we do not have to choose between big government and low taxes--that we can get both by cutting waste, fraud and abuse. But the money is in the big middle-class items, from Medicare to the mortgage-interest deduction. With federal taxes at 15% of GDP, a historic low, and spending at 24% of GDP, there is really no conceivable way to close the gap without increasing taxes--either raising rates or eliminating deductions and loopholes. And Republicans might find to their dismay that when forced to choose, Americans will decide that they like their government programs after all. Polls show that the public would rather raise taxes than, for example, cut Medicare. (In fact, we would have to do both.) The public may hate government in theory, but it has warm feelings about most individual government programs, from the space shuttle to Head Start to Pell Grants. This may be why Obama might be happy to have this debate in 2012 and urge a mix of cuts and increased revenues.

Whatever the outcome of the ideological debate, that outcome has to then be translated into public policy. For that to happen, we need a government that works. What the debt crisis has highlighted is that Congress--the heart of day-to-day government--is utterly and completely broken.

Can one measure this breakdown? Yes. Congress is more polarized than ever before. A National Journal study shows that, for the first time since the publication began tracking the divide 30 years ago, the most left-wing Republican is more conservative than the most right-wing Democrat. There is no overlapping set of moderates, who used to engineer congressional compromises. This polarization has resulted in paralysis. More than two years into the Obama Administration, hundreds of key positions in government remain vacant for lack of Senate confirmation. The Treasury Department had to handle the global financial crisis, recession, bank stress tests and automaker bailouts, as well as its usual duties, with about a dozen of its senior positions--almost its entire top management--vacant. Senate rules have been used, abused and twisted to allow constant delay and blockage. The filibuster, historically employed about once a decade, is now a routine procedure that allows the minority to thwart the will of the majority. In 2009, Senate Republicans filibustered a stunning 80% of major legislation. Given how the chamber is composed--two Senators per state, no matter how thinly populated--people representing just 10% of the country can block all legislation. Is that how a democracy should function?

American parties now function like European parliamentary ones, ideologically pure and with tight discipline. But we don't have a European system. In parliamentary systems, power is united so that when, for example, the British Prime Minister's coalition takes office, it controls the legislative branch as well as the executive. The Prime Minister is, in effect, chief legislator as well as chief executive. The ruling party gets a chance to implement its agenda, and then the public can either re-elect it or throw the bums out. The U.S. system is one of shared and overlapping powers. No one person or party is fully in control; everyone is checked and balanced. People have to cooperate for anything to get done. That is why the Tea Party's insistence on holding the debt ceiling hostage in order to force its policies on the country--the first time the debt ceiling has been used this way--was so deeply un-American.

The strength of the Tea Party is part of a broader phenomenon: the rise of small, intensely motivated groups that have been able to capture American politics. The causes are by now familiar. The redistricting of Congress creates safe seats, so the incentive is to pander to the extremes to fend off primary challenges, rather than to work toward the center. Narrowcast media amplify strong voices at the ends of the spectrum and make politicians pay a price for any deviation from dogma. A more open and transparent Congress has meant a Congress more easily pressured by small interest groups and lobbyists. Ironically, during this period, more and more Americans identify as independents. Registered independents are at an all-time high. But that doesn't matter. The system in Congress reflects not rule by the majority but rule by the minority--fanatical, organized minorities.

These dysfunctions have reached crisis levels at the very time the U.S. faces intense pressures from an aging population, technological change and globalization. We need smart policies in every field. We need to pare spending in areas like health care and pensions but invest in others like research and development, infrastructure and education in order to grow. In an age of budgetary limits, money needs to be spent wisely and only on projects that are effective. But in area after area--energy, immigration, infrastructure--government policy is suboptimal, a sad mixture of political payoffs and ideological positioning. Countries from Canada to Australia to Singapore implement smart policies and copy best practices from around the world. We bicker and remain paralyzed.

Some of those best practices used to be American. The world once looked at America with awe as we built the interstate highway system, created the best public education in the world, put a man on the moon and invested in the frontiers of knowledge. That is not how the world sees America today. People watched what happened over the past month and could not comprehend it. We have taken something that the world never doubted--the credibility of the U.S.--and put it into question. From now on, every time the debt ceiling has to be debated, the world will wonder, Will America honor its commitments? Will it keep its word? Will the system break down? We have taken our most precious resource, the trust of the world, and gambled with it. If, as a result of these congressional antics, interest rates on America's debt rise by 1% --in other words, if the world asks for just a little bit more interest to lend us money--the budget deficit will rise by $1.3 trillion over 10 years. That would more than wipe out the entire 10 years of cuts proposed in the debt deal. That's the American system at work these days.

 


Photobucket&nbs

iVillage Member
Registered: 03-18-2000
Tue, 08-09-2011 - 4:34pm

"Bush didn't do it alone and it didn't all happen during Bush's tenure."

I'm well aware what has happened the last 30+ years.

"(I know that is not what is in this post, but it does dominate what is coming from the left, on this board and in the political world)"

Do asides, such as as the above, help with a discussion? I think not.

"I think we need to stop with class warfare and focus on the problems."

If by raising taxes on those making more than $250k per year is considered "class warfare" I disagree.

One of my few deductions is my mortgage interest. I take that deduction but if I didn't it would be neither here nor there. It wouldn't make much difference. Think of the $$$ that would save if we all did away with that deduction.

 


Photobucket&nbs

iVillage Member
Registered: 03-18-2000
Tue, 08-09-2011 - 4:38pm

"Unfortunately our leaders are all so full of themselves they believe that they can do anything.:

There's too much ideology & not enough pragmatism IMO.

 


Photobucket&nbs

iVillage Member
Registered: 03-03-2009
Tue, 08-09-2011 - 4:45pm
What article?

The "class warfare" meme is meant to derail meaningful discussion about the pitfalls of a dwindling middle class. If you study history or political science, you will see that a fragile or nonexistent middle class is a HUGE problem in ensuring a stable democracy.

Jabberwocka

iVillage Member
Registered: 11-11-1999
Tue, 08-09-2011 - 5:44pm

I think we need to stop with class warfare and focus on the problems. 

dablacksox


Cynic: a blackguard whose faulty vision sees things as they are, not as they ought to be.---Ambrose Bierce, The Devil's Dictionary.

iVillage Member
Registered: 11-27-2009
Tue, 08-09-2011 - 6:49pm
<"Bush didn't do it alone and it didn't all happen during Bush's tenure."

I'm well aware what has happened the last 30+ years.>

Yet it is so often left out of the discussion and parred down to being Bush's fault


<"(I know that is not what is in this post, but it does dominate what is coming from the left, on this board and in the political world)"

Do asides, such as as the above, help with a discussion? I think not.>
I would disagree. I was adding something that was not in the post, therefore I felt the need to qualify why I did. I think it helps the discussion, otherwise what is usually said is "I never said.....". I was trying to avoid that.

<"I think we need to stop with class warfare and focus on the problems."

If by raising taxes on those making more than $250k per year is considered "class warfare" I disagree.

One of my few deductions is my mortgage interest. I take that deduction but if I didn't it would be neither here nor there. It wouldn't make much difference. Think of the $$$ that would save if we all did away with that deduction.>

You are always free to give more to the government when you pay your taxes if that is how you believe. I think you will find that most people, liberal and conservative, would disagree with you on the mortgage deduction.
iVillage Member
Registered: 03-18-2000
Wed, 08-10-2011 - 8:48am
Where would you propose we make cuts?

 


Photobucket&nbs

iVillage Member
Registered: 11-27-2009
Wed, 08-10-2011 - 5:56pm
I can't answer that as I do not have the information I would need to make a good guess of where to start. I think a good place to start is with the bloat.
Often I hear people say "that's not enough to make a difference", and they would be right if that is where the cutting was stopped. Pare it down to my budget. I can cut about $3.50 a day if I were to stop drinking soda's. That's $24.50/wk, or $1274/yr.
If my husband were to brown bag it instead of eating at his favorite restaurant everyday we could save about $12/day, $60/wk, or $3120/yr. If we were to eat in on Friday nights and Sunday lunches, we'd save another $70/wk, or $3640. If my husband changed his route to work and avoided the tolls, he'd save about $2.60/day or $676/yr. If my husband would drink iced tea from home instead of purchasing 2 large iced tea's from the fast food place he'd save us another $520/yr. Those few changes alone would save over $9000 in after tax money.
Bigger changes could have bigger impacts built upon the smaller ones, example, selling a car and using public transportation (if available) or selling a larger home and downsizing. Cut's in expenses, big and small can make a difference.
If the cuts don't meet the need, then we would have to consider an additional revenue source, for us that would be a second job, but seeking that additional revenue source would come AFTER making cuts to the budget not before. Otherwise wasteful spending would continue and there is a limit to how often we can seek additional employment to pay for things we may not really need.
That's the basic plan I would like to see congress adopt. Increases in revenue should only come after all other options have been completed, not before.