“Family leave, child care, workplace flexibility, a decent wage – these are not frills – they are basic needs.”
“There is only one developed country in the world that does not offer paid maternity leave. And that is us. And that is not the list you want to be on by your lonesome.”
“We need you to tell Congress, don’t talk about how you support families: actually support families.”
The economic journalist, Robert Samuelson, pointed out in the Washington Post a few days ago, ”The Jobs Mystery”, that even though our unemployment rate has now dropped to 6.3%, there are still 9.8 million officially unemployed people, plus an additional 7 million who would like a job but are not looking. There are also 7.3 million part-time workers who would like longer hours. This gives a really quite shocking total of 24.1 million unemployed or underemployed workers.
Granted we had a bad recession which was not the President’s fault, but it ended in June 2009, a full five years ago. In the meantime his administration has done much to retard economic growth (passing ObamaCare and the Dodd-Frank Act) and little, besides huge deficit spending, to boost it. He and the Democratic Party should be held responsible for this neglect and they probably will be.
One thing which would do a lot to boost economic growth is apparently contrary to liberal ideology and therefore off the discussion table. I am referring to fundamental, broad-based tax reform whereby individual tax rates would be lowered across the board, but in a revenue neutral manner, by closing or greatly shrinking the loopholes and deductions which primarily benefit the wealthy. The two-thirds of Americans who do not itemize their tax deductions would get a big boost in take home pay. Since they are primarily middle and lower income workers whose wages have been stagnant since the recession began, they will tend to spend this extra income, thereby giving the economy a big boost.
If the President were to sincerely ask the House Republican leadership to work with the Democratic Party to boost economic growth, something along this line could be acted upon. This is the way to really aid families. Why doesn’t he do it?
According to Peter Wehner, a senior fellow at the Ethics and Policy Center, the middle class consists of Americans “who do not consider themselves poor or rich, and can imagine their fortunes turning either way.” “We’ve moved towards an economy that more significantly favors skilled over unskilled labor. In addition, jobs, including even higher skilled jobs, are being outsourced to countries like China and India as the economy grows more globalized.”
“While President Obama has shown that he is able to effectively describe these trends, he has proved singularly unable to improve the economy in light of them. Indeed, a slew of economic indicators have worsened during his presidency.”
“Among the public there is a very deep sense of unease and apprehension. Ground that people once believed was stable is seen as crumbling, and many Americans seem unsure what to make of it. But one thing they do believe: right now politics is out of touch with what they’re experiencing. We’ve witnessed a collapse of trust in the federal government, and when it comes to Republicans and Democrats, the public’s attitude is: a pox on both your parties.”
“Most Americans have lost confidence in President Obama; they are deeply unhappy with both his policies and their consequences. …Yet Americans have not so much turned to the Republicans as they have turned against the Democrats.”
“Americans do not have a sense that conservatives offer them a better shot at success and security than liberals. … Rather than speak about the economy in broad abstractions, conservatives need to explain how to put government on the side of people working to better their conditions.”
I consider these excerpts from Mr. Wehner’s introductory essay in the document “Room to Grow: conservative reforms for a limited government and a thriving middle class” to be an excellent summary of the mood of the American Middle Class. Some of the accompanying policy prescriptions are good ideas and some are not. Stay tuned!
In yesterday’s Wall Street Journal, the economist Robert Grady addresses “Obama’s Misguided Obsession With Inequality”. The basic problem is that an important Congressional Budget Office report in 2011, “ Trends in the Distribution of Household Income Between 1979 and 2007”, is easy to misrepresent and misinterpret. Here are three basic pieces of data from the CBO report: The first chart shows that yes, between 1979 and 2007 the rich did indeed get richer relative to the rest of the population. The second chart shows, however, that median household income increased by 62% during this same time period. And the third chart shows that all five income groups made substantial gains at the same time.
As Mr. Grady says, “Here is the bottom line. In periods of high economic growth, such as the 1980s and 1990s, the vast majority of Americans gain and have the opportunity to gain. In periods of slow growth, such as the past four and a half years since the recession officially ended, poor people and the middle class are hurt the most, and opportunity is curbed. … The point is this: If the goal is to deliver higher incomes and a better standard of living for the majority of Americans, then generating economic growth – not income inequality or the redistribution of wealth – is the defining challenge of our time.”
So then, what is the best way to address income inequality? Should we concentrate on raising taxes on the rich and increasing spending on social programs like we have done in the last five years? Or should we rather concentrate on speeding up economic growth, as Mr. Grady says, in order to create more jobs and more opportunities for advancement?
Compare the enormous growth in the period from 1979 to 2007 with the stagnation of the past five years. Isn’t it obvious which is the better way to proceed?
Last Sunday’s Washington Post has an Op Ed column by Jon Kingsdale, “Beyond Healthcare.gov, Obamacare’s Other Challenges” which describes the many challenges confronting ObamaCare besides just the website problems and the millions of individual policies which will be cancelled for not meeting the minimum requirements of the Affordable Care Act. Based on his experience setting up the Massachusetts Health Insurance Exchange from 2006-2010, there will be huge problems in getting enrollment, billing and premium collections working smoothly for such a large government program. For example, an estimated 27% of those who will be eligible for tax credits under the ACA do not have checking accounts. How will their monthly premiums be paid and tracked for these people if they’re late?
Considering all of the problems involved in the implementation of ObamaCare, and the fact that it does not really reform our current very costly healthcare system but rather just extends it to cover more people, it makes much sense to move toward real healthcare reform, which will control costs.
A column in today’s Wall Street Journal by Ramesh Ponnuru and Yuval Levin, “A Conservative Alternative to ObamaCare”, lays out several basic features which should be included in a sensible, market oriented approach to healthcare reform. The principles are:
A flat and universal tax credit for coverage which applies to everyone and not just for employer provided healthcare. The (refundable) credit would be roughly the amount necessary for catastrophic coverage.
Medicaid could be converted into a means-based addition to this tax credit.
Everyone with continuous coverage (which would be provided by the tax credit) would be protected from price spikes or cancellations if they get sick. This provides a strong incentive to buy and retain coverage without the need for a mandate.
A market oriented healthcare system like this is not only preferable to all of the mandates and restrictions of Obamacare, it also improves our current system by both expanding coverage to more people as well as controlling costs by giving health consumers (all of us) a much bigger stake in purchasing healthcare.
The United States spends 18% of GDP on healthcare, twice as much as any other country in the world. Our fiscal stability and future prosperity depend on getting this huge and growing cost under control. The ObamaCare fiasco provides an excellent opportunity to get started on doing this.
Yesterday’s weekend interview in the Wall Street Journal with money manager Stanley Druckenmiller, “How Washington Really Redistributes Income”, vividly illustrates how disastrous Obama economic policy has been for the young people who form the core of his coalition. “High unemployment is paired with exploding debt that they will have to finance whenever they eventually find jobs.”
“I thought that tying Obama Care to the debt ceiling was nutty”, says Mr. Druckenmiller. “I did not think it would be nutty to tie entitlements to the debt ceiling because there’s a massive long term problem. And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith.”
How about the “rat through the python” theory which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable. Unfortunately for taxpayers, “the debt accumulates while the rat’s going through the python,” so that by the 2030’s the debt and its enormous interest payments become bigger problems than entitlements. “That’s where Greece was when it hit the skids”, he says.
What is Mr. Druckenmiller’s solution? Raise taxes on dividends and capital gains up to ordinary income rates and eliminate corporate taxes all together. This is justified because it ends double taxation of corporate profits. But, in addition, the people who run the corporations would be more incentivized to invest the profits in growth and expansion. Ending corporate taxation also ends crony capitalism and corporate welfare. All of this would be “very, very good for growth which is a good part of the solution to the debt problem long-term. You can’t do it without growth.”
Bottom line: we urgently need to rein in entitlement spending but we also need smarter policies to grow the economy faster. Young people ought to be totally on board with all of this. When will they wake up and see the light?
The mainstream media are uniformly agreed that the Democrats and President Obama “won” the latest debt ceiling and shutdown standoff and that the Republicans “lost”. For example, New York Times, reporter Jeremy Peters gives the GOP a rebuke in “Losing a Lot to Get Little”. “For the Republicans who despise President Obama’s health care law, the last few weeks should have been a singular moment to turn its botched rollout into an argument against it. Instead, in a futile campaign to strip the law of federal money, the party focused harsh scrutiny on its own divisions, hurt its national standing, and undermined its ability to win concessions from Democrats.”
This is all true and, in addition, the twenty or twenty-five Tea Party stalwarts made fools of themselves by being so intransigent. And 145 House Republicans ran away by voting against the final deal.
But look at the broader picture. The federal government has been reopened for just three months, until January 15, 2014, and at current funding levels which include the 2013 sequester spending cuts. On January 1, the more stringent 2014 sequester cuts take effect. In other words the pressure is growing on the big spenders in Congress to deal seriously with our ongoing debt and deficit crises.
The big spenders have two options. They can continue to kick the can down the road (i.e. refuse to bargain and force additional continuing resolutions to keep the government open) as discretionary spending continues to shrink more each year. Or they can agree to make significant adjustments to entitlements to slow down their rate of growth, in return for easing the sequester cuts.
In a more rational world, the big spenders would understand that cutbacks must be made and the two sides would bargain in good faith and reach agreement. But fiscal conservatives continue to have the necessary leverage to force compromise, and are unlikely to give it up.
Conclusion: the Tea Party “lost” and fiscal conservatives broke even. The big spenders didn’t “win” but they got a temporary pass because the Tea Party overreacted and was shot down.
A recent article in the Wall Street Journal by the expert on the economics of higher education, Richard Vedder, “The Real Reason College Costs So Much”, points out the similarities between the government’s higher education and housing policies. “In housing we had artificially low interest rates. The government encouraged people with low qualifications to buy a house. Today we have low interest rates on student loans. The government is encouraging kids to go to college who are unqualified just as it encouraged people to buy a house who are unqualified.”
The federal government is now spending $105 billion on student loans each year. The average student loan debt is $26,000 but goes much higher for millions of students. The maximum annual Pell Grant (intended for low income students) is now $5350 and 20% of the recipients come from families making over $60,000 per year.
President Obama suggests capping monthly loan repayments at 10% of discretionary income and forgiving outstanding balances after 20 years. This creates a moral hazard. It signals to current and future loan borrowers that they don’t have to take loan repayment very seriously. It encourages students to major in “soft” academic areas which have poorer job prospects rather than “hard” areas like engineering and technology which have good job prospects.
Innovation in higher education is not coming from government programs but from private initiatives such as massively open online courses (MOOCs). These have the potential to greatly reduce college costs. Community colleges have rapidly growing enrollments and prepare students for skilled jobs in high demand areas such as truck driving, machine technology and health careers.
The cost of higher education is going up much faster than the rate of inflation and the infusion of federal money is making the situation worse by encouraging students to take on excessive amounts of debt. A cap should be placed on the amount of government money which can be borrowed by an individual student. There are plenty of low cost options available for obtaining postsecondary education and government policy should support, rather than subvert, such common sense options.
In today’s Wall Street Journal, Stephen Moore discusses how “Obama’s Economy Hits His Voters Hardest.” A report by Sentier Research shows that the average American household income has fallen from $54,478 in June 2009 (when the recession ended) to $52,098 in June 2013, amounting to a decline of 4.4%.
Mr. Moore notes that in the 2012 election, won by Barack Obama with 51% of the vote, the President received 60% of the youth vote, 67% of single women, 93% of black, 73% of Hispanics, and 64% of those without a high school diploma.
But, according to Sentier Research, it is precisely these groups for which income has fallen the most during the last four years. Those under age 25 experienced an income decline of 9.6%, single women’s income dropped 7%, black heads of household’s incomes dropped 10.9%, Hispanic’s by 4.5%, and those without a high school diploma by 6.9%.
On the other hand, during the period 1981 – 2008, often referred to as the Great Moderation, income for black women was up by 81%, followed by white women up 67%, black men up 31% and, finally, white men up only 8%. In other words, income inequality shrunk dramatically during the Reagan-Bush-Clinton-Bush years and has increased significantly during the Obama years.
The lesson is that in order to spread the wealth it is first necessary to create more wealth. If more people were working today, and the economy was growing faster, then the people at the bottom of the income scale would be doing much better and gaining on everyone else. There are tried and true methods to get this done! It’s exasperating that we aren’t using them!
Today’s Omaha World Herald reprints the article “Get-nothing-done Congress is disrespectful to democracy” by the Baltimore Sun writer, Andrew Yarrow. Mr. Yarrow says that “the 112th Congress, which ended in 2012, passed fewer bills than any Congress in recent memory, and the current 113th Congress is on track to do just as badly. … What Congress does do often seems patently ridiculous. … We need to … ramp up public pressure to get something done, rather than just fight.”
But is the problem just to do something, anything, or is it rather to do something worthwhile? And what if there is a fundamental disagreement, as there is today, about what is worthwhile? One party thinks that the way to boost the economy and speed up the recovery is to increase artificial stimulus (government spending) and to pay for it by raising taxes on the rich. The other party is appalled by the $6 trillion in deficit spending racked up so far by the current administration and wants to slam on the brakes. Each side is working as hard as it can to prevail, especially by discrediting and embarrassing the other side. How do you resolve a dispute like this?
There is really only one person who has the clout and visibility to get this done and that is the President. But when the President is the divider-in-chief, spending much of his time and effort proposing unsound economic and fiscal policies, intended primarily for short term political gain, what is the other party supposed to do? Acquiesce by passing new laws that will just make things worse? Or by standing firm on principle and hoping that the general public will be able to understand and appreciate its opposition to bad policies?
This is the situation which we are currently in. It makes for a difficult and unpleasant time. The economy is slowly recovering from the Great Recession on its own. Let’s hope that this trend continues and that we can muddle through our present political predicament.
The New York Times reported yesterday that “Chicago Sees Pension Crisis Drawing Near”. “A crushing problem lurks behind the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. … The pension fund for retired Chicago teachers stands at risk of collapse.”
William Daley, former chief of staff for President Obama and now a Democratic candidate for governor of Illinois says that “Anyone who thinks that this is just a problem on paper, those are the same people who looked at Detroit 20 years ago and said, ‘Don’t worry about it, we can handle it.’” Chicago Mayor, Rahm Emanuel, another former chief of staff for President Obama, says that “What the system needs is a hard, cold, dose of honesty. I understand the anger. I totally respect it. You have every right to be angry because there were contracts voted on. People agreed to something. But things get updated all the time.”
Just as Chicago and Illinois need a cold dose of honesty about the public pension crisis in that city and state, so does our entire country need a cold dose of honesty about our national fiscal crisis. Shall we wait 20 years or until this problem explodes in our faces (or our children’s faces), or shall we start to deal with it now, while we can still proceed in a rational manner?
Our current public debt (on which we pay interest) is now $12 trillion. With artificially low interest rates, we are paying “only” $250 billion annually in interest on this debt. When interest rates resume their historical average of 5%, our annual interest rate will jump to $600 billion. Where will we find an additional $350 billion per year for interest payments alone? Will we take it from entitlements, from social services for the poor, from our defense budget? Or will we just increase our deficit even more to pay for it? It will have to come from somewhere!
Wake up, America! Learn from the municipal pension crisis. Now is the time to get things straightened out. Further procrastination will have dire consequences.