A Middle Class Under Siege

Tony Auth, Philadelphia Inquirer
Tony Auth, Philadelphia Inquirer

As Republicans roll out the details of their disastrous tax plan, it is not a bad time to take a step back, tune out the media hype , and contemplate what is really going on in our democracy.

Since the 1700’s, America has led the world in the development of democratic processes and institutions.  It is hard to admit that something has gone terribly, terribly wrong.  And yet it has.

For one thing, we elected Donald Trump President of the United States.

But, in our view, that is just a symptom of a much larger malaise.  The economy is in long-term decline and our government no longer works for the benefit of most Americans.

For decades after WW II, the American middle class was the envy of the world.  Today, that same middle class is struggling just to make ends meet.  Wages are stagnant; the level of income inequality is extreme.

Donald Trump tapped into this angst to get elected; Democrats, sadly, were oblivious to the struggles of the very people they were supposed to represent.

The tax debate currently taking place in the United States illustrates a big part of the problem – our political system has been hijacked by big money interests proposing to do just the opposite of what is actually needed.

Slashing taxes on the wealthy and major corporations, as Republicans have proposed, will almost certainly exacerbate income inequality and force cuts in services that primarily benefit the poor and middle class.

Many wealthy individuals, who rely primarily on capital gains and income from assets, already pay less as a percentage of their income than people who work for a living.  That is not fair.  It is almost certainly the reason Donald Trump will not release his tax returns.

Out tax system is already regressive.  Let’s not make it even worse.  Better yet, let’s fix it so the wealthy actually pay their fair share.

You don’t have to be a big-shot Ivy League economist to know that the American middle class has historically been the engine of economic growth in the U.S.  Yet under Republican proposals, by targeting additional tax breaks to the rich, the economy is more likely to shrink further, not grow.

Are you listening Democrats?  Will you take a stand up against the big money interests, oppose so-called Republican “tax reform” in all its nefarious forms, not get drawn in when Republicans throw you a bone like keeping deductions for state and local taxes, and finally do what is right for the American economy and its beleaguered middle class?

Let’s help fix our democracy by making damn sure this latest incarnation of tax cuts for the wealthy is consigned to the dust bin of history where it belongs.

Hillary’s Economic Plan – Nickel and Diming the U.S. Economy and American Workers

Hillary's Economic Plan

This is the second article in a four-part series, “Fix the Economy, Stupid.”

Listening to Hillary Clinton’s speech on the US. Economy last Thursday (August 11), she sounded as if she was fighting hard for the little guy, the American worker, those who have been left behind by bad trade deals and companies moving production offshore to hold down labor costs.  But dig a little deeper and what you find is a plan that is woefully inadequate to meet the country’s investment needs and stimulate renewed economic growth.

As was pointed out in last week’s article, the U.S. economy is in serious trouble.  Growth in Gross Domestic Product (GDP) has averaged just about 2% since 2000, compared to average growth rates of 3% to more than 4% in prior decades since the 1950’s.

With the notable exception of Bernie Sanders, Democratic politicians have been slow to acknowledge the issue, in part because it’s seen as tarnishing President Obama’s legacy.    The reality is that under the circumstances, Obama has done about as well as could be expected given the Great Recession of 2008 and the Congressional gridlock that followed.

Enter Hillary Clinton.  She acknowledges the need for greater investment in U.S. infrastructure, and touts her plan as “the biggest investment in new, good-paying jobs since World War II”.

Well, not exactly.  She proposes to spend $275 billion over five years, or an average of $55 billion annually, less than 0.3% of GDP, and a mere 9% increase in current Federal investment – investment levels already far too low by orders of magnitude.

Some $25 billion of the $275 billion would be used to fund an “infrastructure bank” designed to attract an additional $225 billion non-Federal investment.  That’s not a bad idea for the long term, but it’s not going to stimulate growth or move the needle short term.  It seems like something designed to make the numbers sound bigger than they are, but not alienate her conservative supporters.

Bernie Sanders has proposed infrastructure spending of more than three times the amount recommended by Hillary – $1 trillion through 2020.  Meanwhile, the American Society of Civil Engineers estimates the cost even higher — at $1.4 trillion through 2025 to repair existing infrastructure, or bring it to a “state of good repair,” as they say in engineering parlance.

Quality public infrastructure is a key to the efficient functioning of modern economies.  Allowing it to deteriorate as it has in the U.S. is fiscally irresponsible.  Our highways, airports, ports, railways, water and sewer systems and electric power supply grids are all in need, not just of repairs, but major upgrades.

If you include upgrades in the estimates, the real cost is probably in the tens of trillions to modernize our infrastructure and bring it into the 21st century.  Just as one example, most advanced European and Asian countries already have high speed rail, with trains routinely operating at speeds of more than 200 mph.  In the U.S. our fastest train, Amtrak’s Acela, which runs between Boston and Washington, travels at an average speeds of just 65 mph.

The longer we put off much needed infrastructure investment, the higher the costs and the greater the disruption to our economy.  Now is the time to act.  The economy is faltering badly; interest rates are at historic lows.  Effectively, the cost of borrowing is next to zero.

Hillary Clinton’s economic plan is, in reality, no plan at all.  Her proposed spending levels are too meager to lift the economy, create significant numbers of new jobs, or make a real dent in our huge investment needs.  By pretending to offer a plan that falls so far short, Hillary Clinton is actually putting the future of the U.S. economy, and its workers, at risk.

Next week, in part 3 of our 4-part series “Fix the Economy, Stupid” we’ll examine why mainstream politicians continually underestimate investment needs; why that is a cause for worry; what we can do help remedy the situation, and possible sources of funding.

The Big Picture of U.S. Economy – It’s Ugly

Economic Growth Rates

Last week, the unemployment report came out for July.  The U.S. added 255,000 jobs, more than economists had forecast, and suddenly the economy is doing great, everything is back on track, and the Federal Reserve is likely to raise interest rates later this year.

If you follow the economy through the daily media or the gyrations of the stock market, you are likely suffering from whiplash.  Up one day; down the next.  We’re in a recovery; no, we teetering on the brink on recession.  Ouch, my neck hurts.

Sometimes, it is useful to take a step back, look at the big picture.  But if you do that, be prepared.  You might wind up with more than just a crick in your neck; you are more likely to experience pain deep in your gut.

As shown in the accompanying graph, economic growth in the U.S. has averaged just about 2% in the last decade and a half.  That’s down from more than 3% in the 1970’s through the 1990’s and more than 4% in the 50’s and 60’s.  The latest figures for the first seven months of 2016 have the economy growing  just 1% year over year; optimistically, the very best we are likely to do is 1.5% to 2%  in 2016.

Many Democratic politicians, President Obama included, would have you believe everything is fine, even as they reluctantly acknowledge that perhaps wage stagnation for the vast majority of Americans is a problem.  Well … yea.

Republicans, meanwhile, continue to spew supply side propaganda while pretending it bears some relation to real economics.  Donald Trump touted his “economic plan” (sic), released earlier this week, as tax reductions for “middle income” taxpayers.  Not surprisingly, that statement is misleading at best.  Trump’s proposed tax cuts mirror those of House Republicans and are heavily skewed in favor of wealthy taxpayers, as TDV documented in the July 8 fact sheet, “Under Republican Tax Proposals, the Rich Get Richer.”

Why the long-term economic slowdown with wage stagnation as its core?  The answer is obviously complex.  Economists and talking heads debate whether the cause is increased international competition, bad trade deals, a decline in worker bargaining rights, loss of manufacturing, slackening consumer demand, automation of the workplace, or all of the above.

Well, all of those factors no doubt contribute to the economic malaise the U.S. finds itself in today.  But there may be an overarching cause that very few really talk about – political dysfunction.

That is not just something that happened in the past.  Now and in the future, political dysfunction and outright mismanagement of the economy continue to pose a threat to the security of all Americans.

Economic policy has two major components – fiscal and monetary.  Largely due to the dysfunction of the U.S. Congress, one of those, fiscal policy, is virtually non-existent.  It is not just that Congress can’t pass a budget.  Essentially there is no coherent fiscal policy; no guiding principles by which to foster growth and prosperity, and our economy as a result is at serious risk.

It’s a big problem. It not getting near enough attention.  It needs to be talked about more, and it needs to be fixed.

More about the faltering U.S. economy and what can be done to fix it, including monetary policy, in upcoming articles in TDV’s four-part series: “Fix the Economic Stupid.”