The Middle Class Ain't What It Used To Be

This William Galston Wall Street Journal editorial makes two key points about America's middle class. First, members of the middle class may be doing better than their parents did, but the middle class is shrinking:

Four decades later, the middle class share had declined by 10 percentage points to just 51%, while the upper class share increased by six points and the lower class by four. The U.S. income distribution is still a bell curve, but the left and right tails are fatter and the hump in the middle is lower.

This means that the middle class is less economically and socially dominant than it once was. Relatively speaking, more Americans are enjoying affluent lives at the same time that more are just barely making it (if at all). But that doesn't mean the middle class got poorer. During those 40 years, Pew calculates, the median income of middle-class households (adjusted for inflation) grew by 34%. The median grew for the others as well—by 43% for upper-income households and 29% for those with incomes below the middle class. This isn't surprising, because the median income for all U.S. households rose by 32% during that period, from $44,845 in 1970 to $59,127 in 2010. Indeed, 86% of middle-class Americans, and 84% of all Americans, enjoy higher incomes than their parents did.

Second, the current state of events may have some positive elements, but the recession devastated the middle class. Further, Galston points out that the efforts the middle class has undertaken to survive are unsustainable in the post-recession era:

We can argue about how squeezed the middle class was in the decades between the end of the postwar expansion and the onset of the Great Recession. But two things are clear: The coping mechanisms the middle class employed in those decades (fewer children, more hours worked, more borrowing against home equity) are played out, and it will take middle-class households years to recover from the recession-induced blow to their income and wealth. If we cannot restore a vigorously growing economy whose fruits are widely shared, the struggles of the middle class will persist, and our democratic distemper will deepen.

Left unsaid is an acknowledment that no one from the right, the left, or the center has new idea about how to "restore a vigorously growing economy whose fruits are widely shared," so the middle class will continue to struggle.

Woody Guthrie Shows Some Things Never Change

Woody Guthrie was born 100 years ago today.  Were he alive today, he would undoubtedly add a verse or two about bailouts, bonuses, and LIBOR.

Can Conservatives And Liberals Solve America's Economic Problems

Dr. Blanchard points to this Robert Samuelson column praising Sweden for successfully implementing both spending cuts and tax increases to solve its economic woes in the 1990s.  Samuelson writes,

Conservatives can take heart that many post-crisis policies came right from their playbook. Sweden’s income tax base was broadened and tax rates were sharply reduced. (In 1996, the average marginal rate — the rate on the last bit of income — was 46 percent; in 2010, it was 33 percent.) Spending was cut on old-age pensions, child allowances, unemployment benefits and housing subsidies. Union power over wages was reduced. Many markets (banking, air travel, telecommunications, electricity production) were deregulated. Low inflation and balanced budgets became broadly embraced popular goals.

On the other hand, liberals will also be reassured. Although Sweden trimmed social benefits, it hardly abandoned the welfare state. Overall government spending is still about 50 percent of the economy (gross domestic product), much higher than in the United States ,where the usual ratio is about 35 percent. To reduce income tax rates, the government raised other taxes. Gasoline and cigarette taxes were increased; so were taxes on dividends and capital gains, hitting the rich. Altogether, deficit reduction totaled a huge 12 percent of GDP from 1991 to 1998. Slightly more than a third of that came from higher taxes.

Blanchard claims "there is a lot more there to please conservatives, but it also shows liberals how a welfare state can be sustained."

I'm going to disagree for a couple of reasons.  First, as I posted in the comments on South Dakota Politics, Republicans have replaced "Thou shalt have no other gods before me with "Thou shalt never raise capital gains taxes."  It's not just the number of compromises or concessions that one is asked to make; it's the fervor with with which the positions that one is asked to compromise are held.  In the US, conservatives seemingly hold eliminating capital gains taxes sacred.

The second reason that I disagree with Blanchard comes from a point that both he and Samuelson seem to ignore.  Samuelson writes,

Unfortunately, in one crucial respect, the Swedish experience can’t be duplicated. In the early 1990s, the rest of the world economy was relatively healthy. Sweden could offset the depressing effects of its domestic policies by exporting more — and that’s what happened, aided by a huge devaluation of its currency, the krona. The devaluation made its exports more price-competitive.

Samuelson doesn't point out that Sweden reduces military spending as a share of GDP.  Conservatives in the United States seem unwilling to do that.

That refusal seems important because military spending makes up 20% of the U.S. budget as this chart from the Center on Budget and Policy Priorities points out.

Derek Thompson points out that the United States federal government is nothing more than a large insurance company:

The federal government was once elegantly described by Ezra Klein as a big fat insurance company surrounded by a standing army. It's a useful quip, because our government is basically in the business of security. Social Security, income security, health care security for the elderly, poor and veterans, and guns-and-helmets security account for about 80% of government spending. That's what we pay for when we pay taxes.

I would guess that all governments fit that description. Sweden cut income, health, and "guns-and-helmets" security.  If American leaders seriously want to solve the country's fiscal problems, they will have to do the same.  I don't see either conservative leaders, or liberal leaders for that matter, willing to make those tough decisions.

I Summarize My Reading About Wall Street

I get confused easily, so I am going to use this post to think aloud about Wall Street and the Occupy Wall Street movement.

According to Michael Lewis in The Big Short, Wall Street Bankers gambled and engaged in stupid and greedy practices that brought the United States perilously close to ruin.  As a result of surviving these practices, Wall Street Bankers expect huge bonuses for 2011.  Meanwhile, household incomes continue to fall even though the recession is allegedly over.

Now some people are occupying Wall Street to protest that situation.  Republican Eric Cantor claims these people constitute mobs.  The Dakota War College, meanwhile, says they smell bad and are unpatriotic because they don't carry flags.  In addition, the Los Angeles Times reports,

Republican presidential contender Herman Cain amplified his criticism Sunday of the growing Occupy Wall Street movement, calling the protesters “jealous’ Americans who "play the victim card” and want to “take somebody else’s” Cadillac.

In summary, the people who caused the recession are apparently supposed to get bonuses while the people who protest the fact these bankers get bonuses while average household incomes are shrinking unpatriotic, dirty, thieves.  It's a good thing these protesters haven't paraphrased or recited William Jennings Bryan's Cross of Gold speech.  They'd probably be open to being called unchristian then.

Woody Gutherie On Jesus

This clip seems appropriate for a Sunday afternoon during a jobless recovery.  Will Kaufman is the artist covering Gutherie's song.  He's also the author of Woody Gutherie: American Radical.

Debt Ceiling And Default Silver Lining: Language Use

The Economist gives readers some alliteration:

It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take.

Note the repeated hard C in cacophony, conservative, and clinging.  Not also that the author repeats the T sound at the end of cent, deficit, and must and the beginning of tax and take.

Steve Benen points to this @jamescrabtree tweet 

Frm a friend in Asia: "I can summarise the mood of Asian central bankers to the US debt imbroglio in two words: Resigned incredulity."

Appropriately, "resigned incredulity" also applies to parents watching the more bizarre actions of their teenage children or sports fans hearing a report that Bret Farve may come back from one more season.

Of course disaster has always brought out some authors' poetic sides.  Consider this famous passage which, with its description of economic turmoil, seems appropriate.

¹And I saw when the Lamb opened one of the seals, and I heard, as it were the noise of thunder, one of the four beasts saying, Come and see.
 ²And I saw, and behold a white horse: and he that sat on him had a bow; and a crown was given unto him: and he went forth conquering, and to conquer.
 ³And when he had opened the second seal, I heard the second beast say, Come and see.
 ⁴And there went out another horse that was red: and power was given to him that sat thereon to take peace from the earth, and that they should kill one another: and there was given unto him a great sword.
 ⁵And when he had opened the third seal, I heard the third beast say, Come and see. And I beheld, and lo a black horse; and he that sat on him had a pair of balances in his hand.
 ⁶And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.
 ⁷And when he had opened the fourth seal, I heard the voice of the fourth beast say, Come and see.
 ⁸And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him. And power was given unto them over the fourth part of the earth, to kill with sword, and with hunger, and with death, and with the beasts of the earth.

Why We Need An Economic Version Of The X-Files.

I've blogged that facts don't speak for themselves here and here.

At South Dakota Politics, Dr. Blanchard posts "The Fiscal Mess We're In" with a follow-up. Blanchard calls uses New York Times, Wall Street Journal, and Weekly Standard articles to call for cuts to entitlements including Social Security. 

To his credit, Blanchard, unlike many conservatives admits that tax increases might be necessary.  I'm unsure if  Blanchard would would agree with the facts, tone, or reasoning that Robert Ferguson and Thomas Johnson present in Salon.

Between 2002 and 2007, for example, the richest 1 percent of Americans garnered 62 percent of all income gains, while the bottom 90 percent of the population saw their incomes grow by 4 percent. At the same time, thanks to the Bush tax cuts, the rich were also paying proportionately fewer taxes. Considering that ordinary Americans fronted most of the money for the bank bailouts and have endured most of the recession’s “collateral damage,” it seems only simple justice that if the program needs fixing, the best way to do it would be to raise the ceilings on earnings subject to the Social Security tax, which is currently only $106,800. That would put the burden on people who cannot plausibly claim to be suffering.

Further, Ferguson and Johnson conclude the following about entitlements:

But even now there is no near-term threat to Social Security’s solvency. In 1983, Congress enacted into law recommendations of the Greenspan Commission to raise Social Security taxes to cover the retirement bulge coming from baby boomers. Since then, the program has piled up enormous surpluses. These have been invested in government bonds, thus helping to finance the rest of the government.

The 2011 Report of the Trustees of the Social Security Trust Fund projects that the Trust Fund and interest earnings from it will suffice to cover all benefit payments until 2036. Even then, the fund would not be empty -- the report projects that tax revenues will still cover approximately 75 percent of promised benefits until 2085. Talk of the bankruptcy of Social Security is hot air.

Meanwhile, Blanchard contends,

The Democrats in Congress have agreed to promises of future spending cuts, but only in non-entitlement spending. That just begins the process whereby entitlement spending and interest on the federal debt squeezes out all other spending. Until and unless entitlement reform is really on the table, agreeing to revenue increases just compounds the problem.

Where's the economic version of Mulder and Scully?  The truth has to be out there.

Teaching Civics May Help Preserve The Middle Class

William Damon, a professor of education at Stanford University, director of the Stanford Center on Adolescence, and a senior fellow at the Hoover Institution, worries about the recent information that students score poorly on basic civics knowledge.

Damon makes a trenchant conclusion and offers a solution that might have long term benefits beyond test scores.  He writes,

How can we do better? Of course we need to teach students the Constitution, along with its essential underlying principles such as separation of powers, representative government, and Federalism. Excellent programs for such teaching now exist. But these programs are not widely used amidst today's single-minded focus on basic skills

Those points may not be new to those who understand the idiocy behind the testing regime mandated by NCLB/RTTT.  The fact that they come from a Hoover fellow is welcome.

More importantly, Damon writes,

As for the essential matter of motivation, the only way to capture students' interest is to inspire in them some justifiable pride in their country's best traditions. Fortunately, U. S. success stories are not hard to find. In our recent history, three 20th Century cases could be taught to promote pride in the American tradition: 1) the civil rights movement that extended rights to millions of citizens in the United States; 2) victories over totalitarianism (especially fascism, communism, and other militaristic tyrannies) that extended new freedoms to millions of subjugated people in Europe and Asia; and 3) the building of a middle class that offered economic freedom to millions of ordinary citizens, and to immigrants coming to American in search of a better life as well. [Bold Mine]

I'm always a bit leery of appeals to American greatness because those phrases are often turned into jingoistic domestic political slogans that favor the Koch brothers or corporate America.  The middle class, however,  is under the most vicious assault I have seen in my nearly 54 year life.  I seriously doubt that current trends will allow any future grandchildren the opportunities to better themselves that I had.  If students are taught that the middle class was necessary for economic freedom AND that its being systematically decimated, perhaps there's a chance to reverse the current trend.

If Americans don't reverse this trend, I echo Damon's prediction for a dire future.

We live in a time marked by anxieties over many perceived threats to our way of life—terrorism, economic collapse, and climate change, to mention just a few of the widespread fears making our headlines these days. But there is a looming crisis closer at hand that poses every bit as grave a threat to the future of our way of life: the very real possibility that our democracy will be left in the hands of a citizenry unprepared to govern it and unwilling the make the sacrifices needed to preserve it. A free society requires an informed and virtuous citizenry. Failing this, as Ben Franklin long ago warned, despotism lies just around the corner.

(HT: Bruce Bawer)

Some Thoughts on Anger and Betrayal

Yesterday, conservative blogger David Frum opined,

Americans who feel robbed and duped by the series of financial and economic disappointments and disasters from the dot-com bubble onward are boiling with rage against their financial and political leadership. Conservative Americans express that rage in terms learned from talk radio and Fox News. But the fact that these conservative voters express their rage by talking about “debt” and “taxes” does not mean that they want what K Street wants: a Ryan budget that cuts spending on people like them to finance tax cuts for people much richer than them. They are just using familiar words to express a new and unfamiliar emotion of betrayal and resentment.[emphasis mine]

I want to examine the bolded sentence a bit.

First, if these feelings are "new and unfamiliar" what took these conservatives so long?  If they are social conservatives, Republicans have been using them with promises of overturning the Roe decision for decades.  For at least six years of the Bush administration, Republicans controlled all of the levers of government and they delivered nothing.  If these aggrieved people are libertarians, the alleged PATRIOT Act and its assault on civil liberties should have sent them over the edge nearly a decade ago.  The only conservatives who should be happy with the Republicans are the richest 1% represented by K street.

Second, why is the "betrayal and resentment" not being turned on those who betrayed them?  Ron Paul has been a more consistent deficit hawk and spokesperson for civil liberties than most.  Most Republicans who have served 3 or 4 terms in the House or 2 terms in the Senate have drunk deeply from the K Street Kool-Aid.  Yet the conservatives' anger seems to be turned against Democrats.  Let me add here that Democrats bear their share of blame.  The Plainsman wishes a pox on both houses.

Finally, and I admit that I should be a better person but I can't resist, the fact conservatives are expressing their "rage in terms learned from talk radio and Fox News" illustrates that one gets what one pays for.  Both Fox and talk radio choose to appeal to the lowest common denominator and enrage rather than enlighten.  Both reject nuance and logic while spreading propaganda and logical fallacies.

As one who thinks the Hulk is an acceptable role model,  I have nothing against anger.  Anger, however, must be directed at the proper target.  Even the Bible instructs one:  "Be ye angry, and sin not: let not the sun go down upon your wrath" (Ephesians 4:26 KJV).  The first step in avoiding sin probably is directing the anger at the proper target.

Who Decides Which Gamblers Are Arrested?

The government is going after the three largest poker sites in the country.

Eleven executives at PokerStars, Full Tilt Poker, Absolute Poker and a number of their affiliates were charged with bank fraud and money laundering in an indictment unsealed in a Manhattan court. Two of the defendants were arrested on Friday morning in Utah and Nevada. Federal agents are searching for the others.

Millions play online poker and watch televised tournaments despite the fact that "[i]n 2006 Congress passed a law curtailing online gambling. Most of the leading sites found ways to work around the law, but prosecutors allege that in doing so they broke the law."

Government officials allege, “These defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits,”

No one is for fraud, and those who benefit from millions of dollars in illegal profits should be prosecuted.  Still if the government can prosecute 11 people who ran allegedly illegal gambling sites why can't they arrest and prosecute those whose gambling caused the banking crisis that caused the worst economic crisis since the great depression?  Apparently, failing to prosecute these individuals is unique and risky.

But several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.

Former prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.

I guess if something's too big to fail it's also to big to prosecute; he only time to safely "go all in" is if one can bring down the whole house.

Pop Culture and Teaching: A Brief Observation

The Starship Enterprise needs at least five different personalities to "boldly go where no one has gone before."  Whether it be Kirk, Spock, Bones, Scotty, Chekov, Uhura, and Sulu or The Next Generation's Picard, Riker, Data, Worf, and Troi, the crew seemed to need different personalities to carry out the mission.  The Fantastic Four has Mr. Fantastic, the Invisible Woman, the Human Torch, and the Thing.  Each of these characters has a distinctly different personality.  Schools seem to have Miss Trunchbulls or Miss Honeys or Coach Cleats, and they seem to be living stereotypes not personalities.

It seems to me that schools who are tasked with helping students take society beyond where it is now are being taught predominantly by one or two personality types instead of six or seven.  I don't know if businesses limit the types of personalities that they hire or not, but it seems to me dangerous to have too much homogeneity.  Bear Stearns seems to illustrate that fact.  The company had too many gamblers and too few whistle blowers.

I may be finding similarities where none exist, but it seems to me schools would be better off with a few more more Worfs, Spocks, and Human Torches.