The Disconnect

Posted in Around The Nation, Commentary, The Economy at 12:32 pm by wcnews

There’s a disconnect in this country of those most deeply affected by the current economic problems in this country, middle and working class Americans, and what’s to blame for it. Mostly it’s a disconnect regarding the causes. It didn’t start with Bush, Clinton, or Bush, it goes back to Reagan.

Paul Krugman does a great job today of showing the divide between the Democrats and Republicans on the most important of issues, the current economic situation. Senator Bunning’s Universe.

Consider, in particular, the position that Mr. Kyl has taken on a proposed bill that would extend unemployment benefits and health insurance subsidies for the jobless for the rest of the year. Republicans will block that bill, said Mr. Kyl, unless they get a “path forward fairly soon” on the estate tax.

Now, the House has already passed a bill that, by exempting the assets of couples up to $7 million, would leave 99.75 percent of estates tax-free. But that doesn’t seem to be enough for Mr. Kyl; he’s willing to hold up desperately needed aid to the unemployed on behalf of the remaining 0.25 percent. That’s a very clear statement of priorities.

So, as I said, the parties now live in different universes, both intellectually and morally. We can ask how that happened; there, too, the parties live in different worlds. Republicans would say that it’s because Democrats have moved sharply left: a Republican National Committee fund-raising plan acquired by Politico suggests motivating donors by promising to “save the country from trending toward socialism.” I’d say that it’s because Republicans have moved hard to the right, furiously rejecting ideas they used to support. Indeed, the Obama health care plan strongly resembles past G.O.P. plans. But again, I don’t live in their universe.

More important, however, what are the implications of this total divergence in views?

The answer, of course, is that bipartisanship is now a foolish dream. How can the parties agree on policy when they have utterly different visions of how the economy works, when one party feels for the unemployed, while the other weeps over affluent victims of the “death tax”?

Last night on Charlie Rose the differences couldn’t have been more stark as well. First up was Elizabeth Warren who is the Chair of the Congressional Oversight Panel (COP). Which was created to to “review the current state of financial markets and the regulatory system.” Warren is a champion of the Middle class. At the end of her discussion she made this statement:

It will not save us if a handful of Wall Street banks porsper and the rest of American fails. Our focus, our energy, our hear has to be on the reset of America.

She was followed by someone who thinks too much regulation is what caused our current economic problems, Dick Armey. Believer in the “free market”, who thinks anti-trust regulation is “unnecessary, superfluous, and conterproductive”, and he even brought up the failed “Joe the Plumber” wealth redistribution line. But the truth is “wealth redistribution” has been occurring in this country since Armey and his hero Ronald Reagan took office. Money has been being taken from wage earners and the middle class, in the form of tax increases, and been given to the wealthy, in the form of tax cuts. That’s what supply side/trickle-on-down economics was all about.

As Warren explained well last December, America Without a Middle Class.

Families have survived the ups and downs of economic booms and busts for a long time, but the fall-behind during the busts has gotten worse while the surge-ahead during the booms has stalled out. In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s.


But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago — for a house that was, on average, only ten percent bigger and 25 years older. They also had to pay twice as much to hang on to their health insurance.

To cope, millions of families put a second parent into the workforce. But higher housing and medical costs combined with new expenses for child care, the costs of a second car to get to work and higher taxes combined to squeeze families even harder. Even with two incomes, they tightened their belts. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and other flexible purchases — but it hasn’t been enough to save them. Today’s families have spent all their income, have spent all their savings, and have gone into debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer.

Through it all, families never asked for a handout from anyone, especially Washington. They were left to go on their own, working harder, squeezing nickels, and taking care of themselves. But their economic boats have been taking on water for years, and now the crisis has swamped millions of middle class families.

You can see the disparity in graphic form here. As has been chronicled here the investment of tax dollars in infrastructure, R&D, education is what fueled our economy and kept us out of deep recessions for decades. All of that investment is gone, and the infrastructure is either crumbling or too antiquated and needs to be replaced. We need that kind of investment again to fuel our economy in the future.

But there is a disconnect for many people as to the cause of our economic problems. Many do not understand, because politicians and the media won’t tell them this, and it’s likely they’re not learning about this in their History, Government and Economics classes. The middle class and working class have been decimated because the wealthy and corporations won’t pay their fare share. And many think the government is to blame. That’s the disconnect. The only question left is how bad does it have to get before they make the connection?

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