This post is a little longer than usual, even for me, so I’ve made it in a slightly larger font to make it easier to read, which, of course, made it LOOK even longer than it already is.
I watched a documentary film a couple of days ago, and there on my screen tonight was one of the “characters” from the documentary in the middle of the PBS Newshour. It was not quite the blending and bending of finding “Ironman III” in the midst of the “news” although that in itself is not such a strange event any more since the commercial side of television has subjugated the News division of the networks under the Entertainment division. What once was “news” is now actually “infotainment”. All you have to do is count the number of letters in the term to divine the implied emphasis. But this was a genuine billionaire plucked from the politically liberal documentary (well, I assume it was intended to be “liberal” since it was taken from the notes and lectures of Bill Clinton’s secretary of Labor, Robert Reich’s course at Berkley, a strongly liberal pedigree if ever there was one) and plunked down in the decidedly liberal “news” of the Public Broadcasting System.
Now admittedly the Public Broadcasting System is perhaps a little more socialistic than purely unbiased “in the PUBLIC interest”, though it does seem to me, being a liberal sort, that is has more right to the claim of “fair and balanced” than the network that claims that slogan (Fox, if you didn’t know). But here we are amidst the “debate” about how to improve the economy, and the “liberal” side is being defended not by a “community organizer-in-chief”, nor any of his cabinet or any such person, but one of the first Amazon investors (number seven according to the stock certificate he showed us on his wall during the Reich documentary) who also sold his second company to Microsoft for some six point some odd billions of dollars as well (though I presume his was not the sole proprietor of that business either). Still, during the PBS news multi-millionaire Nick Hanauer was making the same point that he had made in Reich’s film: One billionaire can still only drive one car at a time, even if he buys five or six. That is no way to stimulate the economy compared to paying thousands of people a decent wage so that those thousands of people are each able to afford to buy and operate a car. Making tens of thousands of cars employs a lot of other people who would then be able to afford a car, and so on. It is the middle class that will be the make or break factor in the economy, and we’ve got to find a way for them to get past their long stagnated wages and back into something like a middle class life style. The “American dream” of a comfortable lifestyle was not based on “chicken” as the standard meat to support the nutritional needs of a family. The consumer price index, which was attuned to that American dream was “adjusted” (downward) to the much cheaper meat (to chicken from beef) so that the market basket of consumer goods would not appear to be inflating so rapidly. It was an accounting trick, or more specifically a political trick to make people think that things were “fine” as the economy was “adjusted” to favor the already wealthiest people’s acquisitive financial capability.
The middle class meanwhile has been going through various strategies. Most recently, they were using the equity in their homes as a “piggy bank” to finance their lifestyle, and that is one factor that helped bring on the mortgage crisis. The so-called mortgage crisis was also brought on with a liberal dose of help from the mortgage companies lending practices (more on that in a moment) and Wall Street bundling those supposedly solidly collateralized loans as stable investments, when they knew the underlying collateral, the mortgages were not investment quality. And for that matter that the equity value in the homes that were mortgaged was not sufficient to satisfy the criteria for investment grade. Meanwhile all of this was being insured against losses by similarly worthless paper known as debt-swap insurance from AIG. The banks, and especially AIG got bailed out by the government. I say “especially AIG” because claims against AIG were paid in full, with little or no proof of loss, and no haggling in the manner typical of insurance adjusters over the actual value of loss (if any). But the ones who got little or no help were the homeowners who lost their homes (and in some cases substantial amounts of equity, which was due to a large extent of the vast availability of foreclosed homes), the homes themselves lost most of their equity value anyway. Whether led by their own greed to overspend or misled by misrepresentations of the stability of their mortgages’ low, low rates, which were variable, not fixed. That was a fact that many borrowers either failed to understand or were led to be overly optimistic about by the nearly constant news reports that the federal reserve bank’s prime lending rate had been virtually perpetually low, at least for a very long time, with announcements that they had no plans to raise it. Ah, but our greedy mortgage bankers got very itchy, very early on, to bump those rates, a notch or five higher, generally to the maximum increase they were allowed under the terms of the variable rate changes permitted by those variable mortgages. That put the “regular” mortgage payments well beyond the rates that the borrowers had originally qualified to pay, and put them out of reach of their actual ability to pay, thus the mortgage default crisis came into being, self-created by the mortgage lenders. And by this time, mortgage subsidies from the federal government were not enough to put a stable footing under the FANNIE MAE and FREDDIE MAC bundles in which those institutions had “invested”. Fannie Mae and Freddie Mac were virtually obligated to buy up those mortgages under the terms of their charters, although some sense of discrimination should have prevailed over the ACTUAL viability of both borrowers and the ACTUAL equity value in the homes. There were, after all, minimum standards that had to be met for the mortgages to qualify, and one of those was real equity, which in many cases just wasn’t there. And everyone, every over-reaching, and greedy or unknowingly vulnerable one was spread over-a-barrel, or living in one, especially since the IRS still wanted its share, and its share of ordinary income was double or more (in at least some cases) what wealthy, top 1% had to pay. The bite it was taking out “ordinary” (earned) income was often more than double compared to the “unearned income” the kind received mainly by the people earning so much the last thing they needed was a lower tax rate than their employees as Warren Buffet himself eagerly pointed out was the case in his own office.
Before the “piggy bank” strategy there was also a more disruptive social trend that was a positive step toward social equality, but away from that “American Dream” as conceived in the earlier part of the 20th Century. That dream which looked so promising and really possible by mid-century following the end of the Second World War. This “progress” was accepting that a single wage earner in a family was insufficient to pay the bills, the spouse also had to find a job.
Not only was this a major tilt from a more-or-less level field for lower middle class and the lower classes to attain that middle class “dream” status, it became an uphill struggle in several different ways. Let’s just start with the change that came about in the field of “child care”. Now, as wages stagnated and prices kept rising, forcing both parents to seek employment outside the home, the practice of sending the little ones off to pre-school or kindergarten was no longer a brief respite during the day for the homemaker to be able to have a couple hours relief from the hectic pace of caring for the children and “relax” by “merely” dashing out to pick up new socks for the boys at Penny’s, and groceries for the family at Safeway, and stop by the local bakery for some fresh bread, and pick up the dry cleaning from the corner outlet, just in time to greet the tiny van delivering the children home, all of which was facilitated by “borrowing” the family car (the one and only family car) after dropping the spouse at work in the morning, expecting them to catch a ride home with a co-worker who lived nearby.
Of course this happened starting in the 1960’s and led to the “Women’s Movement” because spouses (mainly women, of course, at that time) were only given the opportunity to take lower paying and relatively menial jobs. After all, the “wage earner” was supporting the family and spouses were just supplementing income, a little “pin money” as it was known at the time. Employers exploited this attitude to its maximum in those years with never a thought about equal pay being “fair”. But over the next 20 years, the “need” for a second income grew as wages continued to fall behind inflation (and the Consumer Price Index continued to hide it by masking the real price changes behind market basket adjustments: You will notice that the CPI is now quoted as being “excluding food and fuel”, because, the claim is, that food and fuel prices are “too volatile” to be included, and thus, at any given point in time would disproportionately skew the index number in one direction or the other). Of course we still have to buy food and fuel, but that doesn’t figure into the pure “index” of how the economy is doing. The fact that it is the “consumer” price index is an historical anomaly. But one of the areas that continued to inflate the cost of living was that now child care, outside school hours as well as for pre-school and kindergarten age kids, was now essentially a necessity. Demand exceeded supply, and prices for child care rose to the point where the lower classes either had to rely on relatives and skip “professional” care (I use professional in the loosest possible sense here, since training for being a worker in a child care facility is about as rigorous as being a dog walker in Billings, Montana), or pay through the nose (well, not quite but in many cases the cost of child care ate up almost the entire second salary). There is no question that the demand for child care did create jobs by the thousands, that is, by the time you count every town in North America. The fact that child care of any sort was expensive made the cost of “private school” prohibitively high for most lower middle to middle middle class families.
Now as I have already pointed out, this prompted the so-called “Women’s Movement” which began in the 1960’s and continued through the 1980’s and even into the 1990’s. (Actually, of course, the “women’s movement” began in upstate New York in Seneca in the mid-19th century, but that’s outside the scope of this discussion.) The equal pay for equal work efforts have never reached actual parity, but opportunities did start to open up. The “glass ceiling” has been broken, several times in the Supreme Court of the United States, twice in a major party candidate for Vice-President of the United State (so far), female governors pepper the states, and so on. But even with both parents working outside the home, incomes have failed to keep pace with the demands of home ownership for most of the lower echelons of the economy. Recognition of this fact spawned a brief subsidy program for first time home buyers that was intended as much to try to revive the home construction industry as to put those first time buyers into homes. It was a costly experiment that essentially failed to accomplish either of those goals, though it did help a few people a little bit.
What the first time buyers’ subsidization package failed to do was a more important lesson than what it did accomplish. It failed to be a broad stimulus to the economy as a whole. It did create some jobs, but it was seen for what it was, an attempt to see a blip in the uptick on construction employment as a positive sign that the economy as a whole was on the mend from the disastrous financial crisis of 2008. It fooled very few. You can pull the wool over almost the entire American public’s eyes, but this was not one of those times. The now famous quote of Vice-Presidential candidate Sarah Palin actually applied to the initial stimulus package that the new President managed to get through Congress, loaded with tax cuts that the Republicans considered “stimulus” but you can’t tax cut your way to prosperity. The so-called US$800 billion in “stimulus” was, in fact, “lipstick on a pig,” heavily burdened with tax cuts for the wealthy and corporations (“small business owners” was the term favored by Republicans), with very, very little for the kind of massive infrastructure projects that would have created massive numbers of new middle class employment. This stimulus was nothing like the interstate highways system that President Eisenhower managed to get through Congress. Unfortunately, while it was a visionary and highly worthwhile deficit spending program, it was passed under the (secret) guise of a military spending bill because the very “definition” of an interstate highway was such that it must create a whole national system of emergency “airports”, which is to say, emergency landing strips of highway to allow rapid airborne deployment of American forces anywhere they might be needed within the United State in case of invasion by a foreign power. Since it was “military” spending, as well as infrastructure, in the wake of the Second World War, it was not hard to convince Congressmen (still almost exclusively men) that this was a wise application of taxes being collected, and even deficit spending to accomplish this defensive military goal. It was not a goal that received a lot of public attention, the military deployment purpose of the landing strip designs was intended to be a “secret” national defense strategy based on the experiences of the previous war. As they say, the military is always fighting the previous war (or in this case, anticipating that the next war, whoever “the enemy” might be, would be fighting in roughly the same manner as the last war, a strategy which was fairly self-evidently unwise since the Americans had been a significant factor in winning the prior war.
However, with his attention elsewhere (on social welfare problems, as could be expected from a President whose previous employment had been oriented toward just such problems of urban blight) President Obama failed to produce a vision of equivalent inspiration and scope. Of course, too, the previous Democratic administration had been waiting eight years (through the 2nd Bush interregnum) to try again to put forth a national health plan, and were no small influence (especially in the peacemaking process following the rather bitterly fought primary campaign between Clinton #2 and Obama). But worse still, the insurance lobby had grown “fat”, which is to say, even more powerful than it had been, especially by the introduction of a diversion of Medicare money to the insurance companies’ “Medicare Advantage” plans that siphoned off a considerable (approximately $700 billion per year) in administrative fees from actual Medicare benefits, and their buddies in Congress, were not about to let “socialized medicine” (a single payer plan, like Medicare itself) take away that rather rich icing from their “cake”. The rhetoric arising from this eventually became a Republican claim that the Obama administration plan for their “Affordable Care Act” (eventually known as, proudly, by President Obama himself, “Obamacare”) was “taking $700 billion away from senior citizens” while the administration said it was adding the $700 billion which the (Republican) Congressman Ryan’s proposed Republican budget diverted away from public health care. None of which created any jobs (except for the lawyers who already worked for the politicians drafting legislation to counter the other party’s proposals, and a few ad agency jobs to publicize the fight).
At that time (early in the Obama administration), which was, you will recall, shortly after the financial debacle that virtually coincided with the 2008 presidential election, the various calls for stimulus was a virtually a shouting match between Republicans calling for tax cuts and Democrats calling for spending as the best economic stimulus. The resulting compromise (some claim that governing is the art of compromise) did very little to stimulate the economy largely because of smallness. That is, the smallness of the size of stimulus that President Obama’s colleagues managed to squeeze from Congress. If President Obama had been able to pull out as visionary an infrastructure project as President Eisenhower had done with the Interstate Highway System, say, as an interstate railway system upgrade to equal the quality and speed of tracks and trains that now crisscrossed Europe and Japan (and more recently selected routes in China, too), it would have been the kind of economic stimulus that would have “kept jobs at home”, a key element of stimulating the domestic economy, and put thousands upon thousands to work across the country. Again, flooding the demand for workers, pushing up wages, moving out of wage stagnation for the lower middle class, and under girding the lower classes, too. You can’t lay track in Malaysia using Malaysian labor if you are upgrading the track between Baltimore and Boston, or Atlanta and Houston. In fact, this is exactly the kind of national infrastructure project that could be initially targeted to begin in areas of depressed economic conditions, starting in multiple locations, eventually joining up at distant points (a lot less tricky than joining the eastbound and westbound track of the first transcontinental railroad now that we have pinpoint accurate GPS. So even if you had to spread the political “pork” of government spending across every state in the nation, all of those joints would be laser aligned and GPS positioned. Would $700 billion have been enough? Not a chance, but once undertaken, the commitment to making a nationwide system workable would draw in private capital wanting to gain advantage, state and municipal budgets being applied to assure that railway stations were attractive not only to passengers but to concession lessees who would profit from the foot traffic of passengers boarding and unloading. Then too, there would be all the private shipping companies who would be eager to add loading and unloading facilities. It might be expensive to load flatcars with trailers from trucks, but trucks can’t travel at near airplane speeds across the country for less fuel per ton than they can as part of a high speed train. Once the tracks can handle the speeds, the overcrowding and delays of airports reduces air travel costs too (not necessarily airline ticket prices, which are, today, operating on very thin margins already).
Was Obamacare the greatest social program since Medicare? Since Social Security, perhaps? Well, no, not nearly, especially since it still ended up in the hands of the insurance companies whose overhead was still far higher than the single payer system of Medicare itself, but added regulations that required insurers to pay back a portion of premiums not used on actual care of the subscriber, and other details of the overall plan, like no exclusions for pre-existing medical conditions, made it better than it appears on the surface as just another means of funneling federal money to already profitable insurance companies. But did it create jobs? Did it mean that more of the middle class went back to work? It did not. In fact, fairly significant reductions in the jobless rate from over 8% to around 6% more recently are reportedly due more to long term unemployed persons simply leaving the workforce, no longer seeking jobs and therefore no longer being counted as officially “unemployed”. The size of the workforce itself adds about 200,000 persons per month. Young people mature, though, unfortunately fully one third of them are not even graduating from high school. That is not exactly the kind of highly skilled workforce one would want to be expanding every month. So job growth has to keep pace with that expansion just to stay at the same level. New jobs must be created at the rate of 200,000 every month just to keep up with population growth.
There are those who advocate an increase in the minimum wage, but there are two flaws with that plan. Firstly there is the inflation that will cause, not only will a hamburger now cost $11 instead of the already over priced $4 for a pretty plain burger at the corner burger joint, which will hit the poorest the hardest, but they want to “phase it in” over several years to allow people to adjust to the higher wages, which will merely guarantee the price inflation time to phase in as a parallel effect. And worst of all, rents will rise and landlords will reap the majority of the benefits, exactly the richest 1% who are already excessively compensated (but in this case not taxed until the real estate asset is sold, so essentially this is a tax deferred increase in income, like an IRA for rich people).
Another interesting proposal that has backing from both Nick Hanauer and Robert Reich is an increase in the EIC, the “Earned Income Credit”. This, in case you haven’t heard of it or benefited from it is a “bonus” from the government that they hand out at tax time (April 15th each year) to people who have had a poor income (lower classes and lower middle classes) especially mothers with children who have no husband to help support those children (or even one child) although it also applies to single fathers too, but that is a relatively rare occasion. One of worst features of this program, the income from which can be quite substantial (in terms of the small income these people earn in the first place). It is intended to assure as the name implies that they have at least some non-government income, this program subsidizes their income, in other words encourage people to have at least part of the annual income from actual “work” from someone, preferably backed up with a W2 form to prove that the work was actually done. The BIG problem with how this is handled is that although there is an “option” to spread out the payments over the entire year, adding it to income being earned by the low wage earner week by week supplementing the low pay to make it something closer to a living wage. That option, however, is almost never chosen by the person receiving this subsidy from the IRS/government. They take it as a lump sum, on the day they file their taxes. Ask the folks at any tax preparation firm. The early filers are almost always, mainly, the ones who expect the Earned Income Credit, because it is like Christmas to them. Indeed, the onslaught at tax preparation firms starts a couple of days before the deadline for employers to deliver those W2 forms to their employees, which since it comes around the end of January is very much like a late Christmas (bonus) for them. They take the “bonus” and spend it so quickly it almost never affects the lifestyle, the nutrition of the children, or any of the other benefits to poor families that the legislators intended it to fulfill when they passed the law funding this program. Typically they pay off the huge credit card debt that they have accumulated over the prior year, or they pay off the debts to merchants who have been kind enough to lend them credit (usually at a very profitable rate of interest), or they use it to go out and buy a “new” used car, trading up from the old piece of junk car they are already driving that is sapping them dry with repair bills to one they hope will get them through to the next Earned Income Day, when they will be able to afford to do the same again. That is how Earned Income Credit is actually used by the typical recipient.
The economists have wisely, I think, settled upon this mechanism as one which can have the maximum benefit to the people who need it most, and without causing a general inflationary trend like raising the minimum wage would (which, as we know from the above, tends to benefit the rich more than the poor anyway). I would endorse that move, except that they need to FIX the Earned Income Credit FIRST. They should make it mandatory that the EIC be distributed to the eligible recipients over the course of their employment. The EIC should also be scaled the amount of employment that they have managed to engage in. If they work 20 hours a week for 40 weeks a year, the EIC should be proportional to those 40 weeks, perhaps inversely proportional to the wages they earned, but NOT as it is now, increase for every child they have. Tying EIC to number of children may benefit the elected officials by keeping their electorate population high, or even the churches in the district by adding annually to the number of potential parishioners. But there is no provision in the EIC that the parent must feed and clothe the child adequately. It is entirely local provisions that the parent must educate the child, and believe me, I have heard tales from social workers that would make your skin crawl if not outright vomit at the kind of treatment (no let’s call it what it is, “neglect) that children supposedly being educated at home, were receiving. I am not talking about children who could not merely read, I am talking about kids wandering nearly or actually naked around an apartment in which dirty diapers line the walls and a dead, already stiff from rigor mortis dog was still being ignored under the television set, the drunken mother, well pickled in her favorite alcohol, asleep on the kitchen table. It may sound unbelievable, but it was a true story told to me by a social services worker about the work she was doing. Lump sum EIC should immediately be abolished.
Most important, however, is to create and follow an inspired vision for the future. It doesn’t matter in the short term whether that might be high speed railway system across the nation. North and South, East and west and everywhere in between, or some other environmentally beneficial program, like a national flood prevention program that created adequate levies, and drainage alternatives everywhere there has ever been a devastating loss of life and property. I am admittedly biased. I would like to see that “vision” being a renewable economy based on renewable energy resources, including a re-envisioning of agriculture as an industry that used less water than the human beings on the planet (aqua-culture, aquaponic farming, recycling both water and nutrients in leakless containers that allow water to enter the ground and the natural water table only after multiple cycles of use on the cultivation of plants that feed people, or for that matter switching to algae as a main source of food, fuel and feed for animal “crops”, while also feeding the algae its favorite food, excess carbon dioxide (CO2) from fuel burning energy stations, smelters and furnaces. But whatever course we choose, it must be soon, it must be before the legislatures stall action until it is too late to reverse the effects of climate’s changing patterns of more and more devastating storms, years of drought including failure to resupply aquifers with adequate snow pack in the mountains to replenish the aquifers in the spring, and scorching hot weather in spring, cold snaps in summer, rising sea levels that threaten to completely submerge island chains. Whole island nations in the Indian Ocean are rapidly decreasing in size as rising ocean levels actually have already covered some of their island lands. We need to pay attention to the fact that we have warm the sunny melts in Winter causing runoff that is forced to be contained between frozen river banks, unable to moisten the land needed for Spring crops and generally highly unfavorable conditions for the survival of humans on the planet.
Some vision is needed. Any vision that puts people to work on worthwhile projects. Helping American is also not the only solution. Creating economically viable nations in other parts of the world, whether by shoring up failing bureaucracies in under-governed countries, or showing them how small scale capitalism can benefit local communities. We need to put thousands of people to work, and we need it now, to get the middle class back on track toward a living wage, preferably a living wage from a single family member so that the other spouse can choose to be the homemaker/childrearing patent, because neglect of children, especially failing to instill in them a sense of the real importance of their education to their future success is going to be the ruin of our society if we don’t reverse the trend toward 30 to 50% high school drop-out rates. People with that little education are not destined to join the middle class, they are destined for a life of poverty and misery and I do not want to see that happen. Do you?
Stafford “Doc” Williamson