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November 1, 2014

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Letter to the editor:

Future looks bleak for middle class

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What neither candidate dares say is that the future of the mythic middle class is dismal.

In 1940, we had an unemployment rate of more than 14 percent. Our prosperity thereafter was founded on our World War II quantitative power, the destruction of Axis industry and huge deficit spending, not superior weaponry.

This prosperity remained intact only until the former Axis regained its strength. In 1964, the JFK-LBJ tax cut restored growth and LBJ greatly upgraded the social net and the military for Vietnam, but deficits increased.

All this in the belief, real or pretended, that economic growth would produce more tax revenue and cover the costs. Meanwhile, foreign competition meant jobs lost and stagnating wages.

This, however, did not prevent Americans from buying bigger, fancier houses and cars, with small monthly payments hiding the true cost found only in the greater number of payments, a truth readily ignored.

In sum, we, individually and collectively, have borrowed for many years, acting on the belief that economic growth and more revenue would solve our problems.

But they have not and will not, and most Americans will pay dearly.

The mythic middle class is splintering into a talented, ambitious and, at times, thieving, powerful upper class able to buy large homes and luxury cars while a much larger working class is or soon will be toiling in a manner it thought long past.

This is a fact that unfortunately we shall not get from any politician seeking success at the polls. If memory serves, we never have.

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  1. In bad economic times you lower taxes on the working and middle classes to stimulate growth, employment and consumer spending. With some, limitations set, government borrowing and spending for those who are truly in need and deserving. In good times, you raise taxes on the same persons to increase ghovernment revenue and pay down the government debt. Recent presidents, Obama comes to mind, have it backwards. Although their rhetoric says otherwise, [tax the wealthy millionaires and billionaires only] their actions speak louder than their words [meaning all, small businesses too, who earn $200,000 and more].

    CarmineD

  2. The middle class has choices. It will make a big one on November 7. If they vote their own interests. President Obama will win. If they don't, we will continue the wealth transfer from the middle class to the 1%, at least until there's nothing left to transfer.

  3. After absorbing a 40% shock in their total assets in the last several years, and being under seige in the job market, the middle class is stuggling. If we listen to Obama, he leads us to believe that things are headed in the right direction. The slope of the recovery line is close to zero for employmemt and is negative for GDP growth. Hundreds of thousands have dropped out of the job market, 100 million Americans are on welfare---and Obama claims things are moving in the right direction. In truth, it is the slope of the recovery line that must be lifted.That is not happening under Obama.The middle class needs a dramatic lift in economic performance That is why I will vote for Mitt Romney and Paul Ryan.

  4. Comment removed by moderator. Refers to deleted post.

  5. Here's what frightens and dismays me about both President Obama and Mitt Romney.

    Congress refuses to cut government spending. It's that way now and probably will remain that way.

    President Obama will tax those Americans making over $ 200,000 more to help pay for stimulus spending to hopefully increase economic growth. It's highly unlikely that his plan will result in enough growth to balance our budgets and start to pay down the debt. What is his plan if the economy does pick up some but we are still running huge deficits and increasing the debt?

    Mitt Romney will lower taxes 20 % and reduce loopholes and deductions on the wealthy to balance the cost of the tax cuts. He insists this will create economic growth. It's highly unlikely that his plan will result in enough growth to balance our budgets and start to pay down the debt. What is his plan if the economy does pick up some but we are still running huge deficits and increasing the debt?

    Both men, in different ways, are asking a group of Americans to pay more in taxes, one to fund government stimulus and the other to provide a tax rate reduction. Either might boost the economy some but not enough to fix what is wrong. What then? Neither candidate has an answer and if they don't, each plan, at best, just slows down our headlong rush toward financial oblivion.

    I know we each have to vote for someone but I fail to see why any American would cast their vote with any happiness.

    Michael

  6. Oh, Barack knows the "middle class" is the cash cow of this country. Tis why he wanted ONLY A YEAR extension of the tax cuts--cause once he's re-elected he can MOVE on with his real agenda--redistribute income worldwide. He's busy with treaties so he can send our income to the third world. No talk of rebuilding infrastructure, revitalizing industry, revitalizing capitalism. Just talk of spending and sending. And doing "the right thing" for everybody else.

  7. I'm afraid to say the letter writer is missing the point. Wealth comes from investment. Investment is a function of savings. Housing, medical care and education have all seen hyperinflation in the last few decades. Wages haven't kept up. Low wages combined with sky high costs have decimated the national savings rate. With no savings there is no wealth creation. With no wealth creation there is no middle class.

    Taxes have absolutely nothing to do with it. The people that truly need a break pay very little if any federal taxes other than payroll tax.

    If you want to stimulate the economy costs need to come down and wages need to go up.

  8. The author seems to suggest that massive (and increasing) income inequality in the U.S. is inevitable.

    That may be true in our current political climate, but it doesn't have to be.

    And we don't have to figure this out on our own. There are a number of countries that have very high standards of living, and much (much) greater equality of income: Sweden, Norway, Finland, Denmark, and Germany come immediately to mind, and to a slightly lesser extent, Australia, Canada, France and the UK. All of these countries have adopted economic policies specifically designed to strengthen their middle classes.

    I have always thought that "American Exceptionalism" consisted of taking the best ideas that the world has to offer, and making them our own. Yet when it comes to something as important as the economic survival of the middle class (and ultimately our standing in the world), we have a large number of people who immediately reject anything having to do with "European socialism."

  9. Emthree,

    I don't reject everything that is done in the nations you mention but the numbers show that those economies are fairing about like we are; a few better; many not as well.

    GDP growth is as follows: Sweden (1.3 %), Norway (5 %), Finland (-.01 %), Denmark (-.06 %), and Germany (.5 %), Australia (3.7 %), Canada (2.5 %), France (.25 %), UK (-.5 %).

    Then factor in that the social safety systems in those nations are mostly considered financially unsustainable into the future, and while there may be aspects of each that are better than what we are doing, overall, they face similar issues to the ones we face.

    There is no silver bullet here; neither the status quo or a shift over to what other nations are doing.

    Michael

  10. I am assuming the letter is in support of Mitt Romney for president. It is true the middle class has a bleak outlook under the policies of Pres. Obama. It is funny the same liberal media that wants him re elected gives us daily gloom and doom stories. It has never been a better time in the US to be middle class. Housing, the American dream is much more affordable in many markets then it has been in 10 years. Companies are stronger, leaner and this means job security for good workers. With the advancement of technology a person can start a company with virtually no money. Overseas companies want educated people to help consult to run their factories, there are many good paying jobs, albeit maybe not in your back yard, but for those who want to prosper they can follow the path to financial success with hard work, the American tradition.

  11. Hi Michael. You raise some good points, as usual. I'm not saying that all of our answers can be found in Europe (which clearly has its own set of issues), but it's pretty clear that the U.S. is in a Keynesian liquidity trap. And that's largely due to the fact that our income inequality has reached third world levels. Businesses are sitting on trillions in cash because there is insufficient consumer demand for their goods and services. Further tax cuts and 0% interest rates -- or QE 4, QE 5 or QE 6 -- won't pull us out of this economic slump. We need to come to grips with the fact that you can't run a first world economy when half the population couldn't raise $2,000 in a month to deal with an emergency.

    We need to ask whether our economic policies are pushing us closer to an income model embraced by Norway, Sweden or Australia -- or whether we're going to continue to push our Gini coefficient toward levels that would embarrass an El Salvadoran dictator.

  12. Hi Peter. I wish that were true, but the facts don't support your assertion. If the "American Dream" means upward social mobility, then we're failing miserably. A child born in Australia, Sweden, Norway, Finland, Germany, Spain, France, or Canada has a much better chance of establishing a standard of living that is higher than his parents.

    It doesn't have to be that way.

  13. Emthree,

    As you may know, I prepare bankruptcies as part of what I do to make a living so I agree that there are many Americans that couldn't put together $ 2000 if they had to.

    The question is... how do we re-start our stalled economic engine? How do we compensate for the wealth that the middle class has lost since 2007? The trillions of dollars sitting on the sidelines will stay there until there is demand and after all the wealth was lost in the last 5 years, the middle class is not raring to buy much.

    President Obama seems to believe that we need to print and borrow more money, use it for government programs that hopefully will stimulate growth and employment.

    Mitt Romney seem to believe that if we cut taxes, the economy will start to grow and provide more employment.

    I am dubious of both plans because they rule out higher taxes on the middle class and the poor (the large majority of the population) but also are silent or nearly so on reducing what our government spends.

    There has been wealth transfer from the middle class to the wealthy as many Progressives claim, but I think the larger problem is the 16.4 trillion dollars of American's household wealth that wasn't transferred to the wealthy, but just disappeared into thin air. It is estimated that about 1/2 of that had been recovered by the end of 2010, but that still leave 8 trillion dollars that is still gone. That's 1/2 of the entire national debt.

    You seem to be a person who calmly reasons, do you have any thoughts about what might be a prudent course?

    Michael

  14. I found the arguments in Robert Reich's book "Aftershock: The Next Economy & America's Future" to be compelling. If you're not familiar with Dr. Reich, he's the Chancellor's Professor of Public Policy at the University of California at Berkeley, and was Secretary of Labor in the Clinton administration. He's a liberal and a Keynesian, which makes him an immediate target for conservatives -- but he's also offered the most coherent explanation I've heard from ANY source regarding the reason for our current economic situation: income inequality.

    We have squeezed the middle and working classes so hard that they no longer have the purchasing power to consume the goods and services and our economy is capable of producing. Before the housing bubble burst, the middle class was maintaining a standard of living by borrowing against their homes (the two earlier coping mechanisms involved women entering the workforce in large numbers and increasing the number of hours worked). When that coping mechanism disappeared, consumer spending plummeted. That explains why corporations are sitting on loads of cash (their business are still profitable), but why unemployment also remains high -- there's no reason to expand because demand isn't there.

    Reich argues, and I agree with him, that our efforts should focus on getting a larger slice of the economic pie to the middle class. Yes, that's wealth redistribution. We need to get over our fear of that phrase -- every single aspect of our economic system involves some form of wealth redistribution. Whether it's the price of a postage stamp, or how the fed changes interest rates, or how much pollution we allow manufacturers to impose on the public -- it all has the effect of moving money somewhere.

    What would help the middle class? Higher earned income credits. A massive jobs program, particularly one focused on infrastructure. Medicare for everyone. College loan programs -- and college loan forgiveness. Tax penalties (not incentives) for businesses moving jobs overseas. A living minimum wage. Federal assistance to prevent loss of State and local workers.

    Over the short term, that would require additional deficit spending. Over the long term, that would need to be paid for by significantly increased taxes, particularly (but not exclusively) on higher income people.

    I know, Michael, that you're in favor of a balanced approach of increasing revenue and decreasing spending. The Reich/Keynes approach (and we can add Paul Krugman to that lineup) holds that deficits are better addressed during economic booms. We've seen how austerity programs in Europe are failing to achieve the desired results. The Reich/Keynes/Krugman model explains that too.

  15. I've just finished reading Krugman's "End this Depression now!" Worrying about deficits only serves the creditor class he says. Unemployemnt is our true problem- the game is rigged against we poor.

  16. Emthree,

    I am quite familiar with Robert Reich from the Clinton era and after. I also understand the viewpoint of Keynes and Paul Krugman. I assume then, that you are a supporter of President Obama.

    As I said, I don't really have a great solution to offer but what you propose worries me for the same reasons I stated before.

    Paul Krugman and others argue that we should just deficit spend on government stimulus, and infrastructure is always mentioned as something the government should do.

    President Obama said that was what a good portion of the previous $ 800 billion stimulus would be earmarked for but Congress had other plans and not much of it went to 'shovel ready' projects. I would worry about that same thing again. In addition, much of what the stimulus provided turned out to not be permanent but temporary and once the money stopped the problems remained.

    The second even bigger issue is again Congress related. Due to money, the way campaigns are financed and lobbying, I just don't see members spending even more money provided to them wisely or doing anything substantial in the direction of less government spending.

    Especially in the Congressional area, I have really lost confidence in that branch of government to do good work. They have all discovered that Americans will not punish members if they provide benefits but don't raise taxes to cover what they spend. THAT is really dangerous and damaging. I really think that many Americans feel as I do and that is creating a real headwind to the President's re-election and will continue to do so if he is re-elected.

    With Congress the way it is, I'd prefer to give money to the people rather than hand a bunch of it to Congress and then watch as they spend it unwisely and then continue to spend and not raise taxes accordingly.

    Either way, I am afraid our goose is already cooked and we are all going to have to suffer the consequences.

    Michael

  17. Emthree,

    Just to add, when I hear Paul Krugman and others claim that the reason the first stimulus did not accomplish more is because it wasn't big enough, I am always disappointed.

    He and others espousing the Keynes' view could get further with me if they would just admit the obvious: The biggest problem with the stimulus wasn't the size, it was that once the money became available, Congress wasted some of it and allocated much more of it very unwisely. When they argue that it just needs to be bigger and pretend the other problem doesn't even exist, it gives me little reason to support another allocation.

    The private sector took a bath financially from 2007 on and still are. The public sector was much less affected and then a good deal of the stimulus was used at the state level to shield the public sector from the effects of the recession. When the stimulus ran out, the public sector finally did get hit.

    I think we would have been much better off overall, if the public sector would have been allowed to take the same financial hit the private sector did and that money, instead would have been used for infrastructure projects that used private sector workers. What happened was unfair, but due to the way Congress operates, the closer you are to the levers of power, the better you do when push comes to shove.... game, set, match... the private sector loses.

    I see nothing that has happened in the interim to make me believe that same scenario would not play out again with a 2nd stimulus.

    Michael

  18. Eisenhower set Tax Rate at 92% on Millionaires. There was tremendous opportunity to succeed in those days, to get an education, a job, a new house and have enough left over for a small boat. Ike knew how to succeed no matter what tasks he took on.

  19. Hi Future -- I'm a bit sorry that I used the pie analogy. That suggests that the economy is a zero sum game and that in order for some people to see improvements in their lot, others necessarily have to suffer. That's not necessarily the case.

    But since we started using the pie analogy, I'll continue with it. The problem isn't that the pie hasn't grown. Our economy has gotten MUCH bigger over the last 30 years. The problem is that as the pie has grown, the people at the top of the economic ladder (am I mixing too many metaphors?) have eaten more and more of it. Something like 90% of the pie growth has been eaten by the top 1%.

    Meanwhile, real wages for middle class families have been stagnant or declined -- their slice of the pie hasn't changed. That's why 1 in 3 Americans is living in poverty or near poverty -- and it's why unemployment isn't improving. Too many people have just a tiny sliver of the pie, and they can't part with little they have to buy -- well, other parts of the pie.

  20. I think we agree, Michael, on why the stimulus wasn't as successful as it could have been -- it wasn't allocated well. Most of the money went to the banks, but instead of lending, they built up their cash reserves or bought other banks. Not enough money made its way into the real (consumer) economy.

    I disagree, though, with what you're saying about the public sector. At the end of the day, your spending is my income. My spending is your income. Money moving back and forth is what makes an economy.

    Keeping an additional million or so public sector workers on somebody's payroll was a positive thing. If we had had the wisdom to pass a follow up jobs bill to help States and municipalities retain those workers, we'd be looking at an economy right now with an unemployment rate of less than 7%.

  21. M3

    I agree with all your points and really do like your posts explanations. I just wish more folks could understand from where you speak.

    What is your take on why Government has stopped posting M1, M2, M3, for the public to be aware of our money.

    I feel as though the Fed. and the US Treasury are culpable for the crime of theft, for not allowing the true effects, via the Em' that debasing the dollar would have on our economy- hyperinflation.

    Also, their unmitigated moves entering the bond markets which is a complete departure from capitalism.

  22. emthree: Do you have a way of sorting out, from the "middle" class, those who are capable and willing to make an honest effort from those who are not-so-capable and not-so-willing--those who would go to college, on our dime, with no intention or ability to perform productive work in that profession? Those who are unwilling to WAIT to have kids, cars, houses while they prepare for a profession? Those who are willing to take care of themselves, physically and emotionally, in order to maintain a consistent effort?

  23. I will take a slightly different tack in my answer. I want to get human, rather than completely focus on economic theories and their effects. People are my primary interest.

    Questions about individual responsibility is a multi-generational failure of parental example, expectation, and responsibility that plays a role in the problems for some.

    In our current experience of the global recession, we cannot expect people to starve when there is a lack of jobs, or only jobs requiring higher education & skills that most people don't have, and have no money to get training for said jobs.

    We cannot expect people to starve when business refused to accept less profits in order to ensure a strong middle class of consumers, who has had ever increasing productivity with decades of stagnant wages, rather than an ever decreasing middle class and increasing poverty class.

    Somewhere, there has to be improvement in parenting, which instills values. Also, in business which stimulates the economy by providing equitable wages in jobs that promote consumerism.

    I agree that people need to plan responsibly for purchases of homes, etc., and family planning. Generations during the growth periods of the 40's, 50's, and 60's did that. From the 70's on, something began to go south. It became the ME-NOW period. It somehow changed into the NEED to gauge success by what you owned as fast as possible, and as young as possible.

    I even heard the rationale that one needs to appear successful by what they wear and own, whether it was true or not....fake upward mobility. That idea is one of both business people and the dreamers.

    We have a very serious problem that came about because of the excesses and lack of regulation on banks and investment firms, as well as the outsourcing of jobs and the tax avoidance advantages that have allowed that to be lucrative, but certainly not patriotic, or in the interest of our country.

    Good jobs, equitable wage growth and business profits help to maintain our economic health.

    Politician's from both parties have aided all that to happen, for many administrations. We the people have not paid attention, or put our attention to things that were far less important and divisive.

    We are the ones that need to gain more knowledge and speak to the politicians, rather than newspaper Opinion pages to let off steam.

    We are the ones who have to show we are better than the politicians and try to give an example of compromise and common sense.

    We are the ones who have to believe that the most important thing is People, and focus on issue from the standpoint of what is going to unite us and give us the best opportunity for success over the long term.

    Let the religious moral issues be taught at home, and let each family determine what is best for them, and leave it out of politics. It only gives the politicians an escape from doing what will really help our country and unite us in one nation.

  24. The day of unskilled workers making good money is over. You can be middle class now, but it requires an meaningful college degree or specialized training.

  25. Currently nearly all financial assets are in the hands of a few million people. In terms of income inequality we are neck and neck with Chile and Turkey. Families with incomes under $200K are saving almost nothing.
    None of us will live long enough to see these issues resolved.
    Prices are way to high and wages are to low for most Americans to even fantasize about being self sufficient.

  26. When buying power (demand) shrinks to nil...

    how will 'the world's greatest economy' (& it's corporate entities) sustain itself?

    The concentration of wealth to the tippy top of the 1% while cutting out the midsection leaves too few of us to sustain our economic engine...

    It seems so self-defeating, biting off the hand that feeds you...

    I guess we can export nearly all of our products & services to the World-at-large and become a serfdom...

    but then, we won't be 'the greatest' anything, anymore... will we?

  27. Buy the necessities you need, put the rest in savings. However, you won't get much interest.

    Don't depend on the stock market unless you have money to lose.

    The goal is to be able to become an expat if need be, or stay and accept the reality of regressing to a developing/failing country status or that of the third world.

    Be careful, because the current conditions are moving into the mood that brought Hitler into power.

  28. PS Start home food production in your back yard.