Republican economics: The rich, the poor. No middle
[Welcome, Hunting Net readers!]
Elizabeth Warren has a great article in Harvard Magazine about how polarization by wealth in the United States is increasing under Republican rule. (The coming bursting of the mortgage bubble is one piece of this puzzle, thanks to "Bubbles" Greenspan pushing the Adjustable Rate Mortgage. The Man in the Grey Turtleneck has had his hair on fire on this one for some time.)
If you think of "making it" in the United States today as walking a tightrope, what the Republicans are doing is forcing you to do more tricks on the rope, while they're also yanking the rope to make you fall off, and removing the safety net so that when you fall, you never walk again. Yes, there is class warfare. And most of us are losing it, without even knowing we're at war.
Here's her conclusion:
Every day, middle-class families carry higher risks that a job loss or a medical problem will push them over the edge. Although plenty of families make it, a growing number who worked just as hard and followed the rules just as carefully find themselves in a financial nightmare. The security of middle-class life has disappeared. The new reality is millions of families whose grip on the good life can be shaken loose in an instant.
During the same period, families have been asked to absorb much more risk in their retirement income. In 1985, there were 112,200 defined-benefit pension plans with employers and employer groups around the country; today their number has shrunk to 29,700 such plans, and those are melting away fast.
For younger families, the picture is not any better. Both the absolute cost of healthcare and the share of it borne by families have risen--and newly fashionable health-savings plans are spreading from legislative halls to Wal-Mart workers, with much higher deductibles and a large new dose of investment risk for families' future healthcare. Even demographics are working against the middle class family, as the odds of having a frail elderly parent--and all the attendant need for physical and financial assistance--have jumped eightfold in just one generation.
From the middle-class family perspective, much of this, understandably, looks far less like an opportunity to exercise more financial responsibility, and a good deal more like a frightening acceleration of the wholesale shift of financial risk onto their already overburdened shoulders.
For those of us who are middle class--not all of us, I know--I think Warren's description matches our worries if we've been lucky, and our experience if we have not been.
She also goes into some of the causes. Interestingly (to me, at least) much of her analysis conforms to my general sense that everything went to shit in the mid-1970s; that's when the rules changed. (And, coincidentally or not, that's when the winger billionaries started to fund the VRWC.)
First, household income has increased since the mid-1970sonly because women have entered the workforce:
Today the median income for a fully employed male is $41,670 per year (all numbers are inflation-adjusted to 2004 dollars)--nearly $800 less than his counterpart of a generation ago. The only real increase in wages for a family has come from the second paycheck earned by a working mother. With both adults in the workforce full-time, the family's combined income is $73,770--a whopping 75 percent higher than the median household income in the early 1970s.
But this has also increased risks. With both household adults working, what happens if one of them suddenly can't?
But the gain in income has an overlooked side effect: family risk has risen as well. For families where every penny of both paychecks is already fully committed to mortgage, health insurance, and other payments, the loss of either paycheck can unleash a financial tailspin.
And those of us who use computers know that having no backup when there's a crash is a Very Bad Thing.
Warren goes on examine the causes and consequences of "income risk":
Income risk has shifted in other ways as well. Incomes are less dependable today. Layoffs, outsourcing, and other workplace changes have trebled the odds of a significant interruption in a single generation.
Even the economic risks of divorce have changed. A generation ago, the end of a marriage was an economic blow, but a nonworking spouse usually took a job, bringing in new income to stay afloat. Now, whatever the two-income divorcing couple earns has to cover both their old and new expenses.
The news is even worse for single parents. They face all the difficulties of dual-income families--all income is budgeted, there is no one at home to work if the primary earner loses a job or gets sick, and no one to take over if a child gets sick or an elderly parent needs help--and they are trying to make it on a lot less money, competing with two-income families for housing, daycare, health insurance, and all the other goods and services.
Then there's the expenditure side. Many wingers blame families for being extravagant, and then shill anecdotes of sneakers and designer clothes. But what do the numbers say?
The average family of four today spends 33 percent less on clothing than a similar family did in the early 1970s. ... T oday's family of four actually spends 23 percent less on food (at-home and restaurant eating combined) than its counterpart of a generation ago. ... Today's families are spending 51 percent less on major appliances than their predecessors a generation ago. ...
So where did the money go?
It went to the basics. The real increases in family spending are for the items that make a family middle class and keep them safe (housing, health insurance), that educate their children (pre-school and college), and that let them earn a living (transportation, childcare, and taxes).
Here are the numbers:
The data can be summarized in a financial snapshot of two families, a typical one-earner family from the early 1970s compared with a typical two-earner family from the early 2000s. With an income of $42,450, the average family from the early 1970s covered their basic mortgage expenses of $5,820, health-insurance costs of $1,130 and car payments, maintenance, gas, and repairs of $5,640. Taxes claimed about 24 percent of their income, leaving them with $19,560 in discretionary funds. That means they had about $1,500 a month to cover food, clothing, utilities, and anything else they might need--just about half of their income.
By 2004, the family budget looks very different. As noted earlier, although a man is making nearly $800 less than his counterpart a generation ago, his wife's paycheck brings the family to a combined income that is $73,770--a 75 percent increase. But higher expenses have more than eroded that apparent financial advantage. Their annual mortgage payments are more than $10,500. If they have a child in elementary school who goes to daycare after school and in the summers, the family will spend $5,660. If their second child is a pre-schooler, the cost is even higher--$6,920 a year. With both people in the workforce, the family spends more than $8,000 a year on its two vehicles. Health insurance costs the family $1,970, and taxes now take 30 percent of its money. The bottom line: today's median-earning, median-spending middle-class family sends two people into the workforce, but at the end of the day they have about $1,500 less for discretionary spending than their one-income counterparts of a generation ago.
And here is where risk enters the picture again:
Combine changes in family income and expenses, and the biggest change of all becomes evident--on the risk front. In the early 1970s, if any calamity came along, the family devoted nearly half its income to discretionary spending. ... In other words, [In the 1970s] they didn't need as much money if something went wrong. If the couple could find a way--through unemployment insurance, savings, or putting their stay-at-home parent to work--they could cover the basics on just half of their previous earnings. Given the option of a second paycheck, both could stay in the workforce for a few months once the crisis had passed, pulling the family out of their financial hole.
But the position today is very different. Fully 75 percent of family income is earmarked for recurrent monthly expenses. Even if they are able to trim around the edges, families are faced with a sobering truth: every one of those expensive items--mortgage, car payments, insurance, childcare--is a fixed cost. Families must pay them each and every month, through good times and bad; there is no way to cut back from one month to the next, as can be done with spending on clothing or food. Short of moving out of the house, withdrawing their children from preschool, or canceling the insurance policy altogether, they are stuck.
In other words, today's family has no margin for error.
And now, into this condition of increased risk of financial ruin, and no margin for error, the finance companies enter. (Thanks for that Bankruptc Bill, Beltway Dems.)
Since the early 1980s, the credit industry has rewritten the rules of lending to families. Congress has turned the industry loose to charge whatever it can get and to bury tricks and traps throughout credit agreements. Credit-card contracts that were less than a page long in the early 1980s now number 30 or more pages of small-print legalese. In the details, credit-card companies lend money at one rate, but retain the right to change the interest rate whenever it suits them. They can even raise the rate after the money has been borrowed--a practice once considered too shady even for a back-alley loan shark.
Home-mortgage lenders are writing mortgages that are so one-sided that some of their products are known as â€œloan-to-ownâ€ because it is the mortgage company--not the buyer--who will end up with the house. Payday lenders are ringing military bases and setting up shop in working-class neighborhoods, offering instant cash that can eventually cost the customer more than a thousand percent interest.
The financial fallout has begun, and the political fallout may not be far behind.
I hope there's some Democrat that understands this.
Back in 2004, I was sold on the Dean campaign because of universal health insurance. I mean, it's crazy that when I lose my job, as I did in the dot-com crash, that I should risk death because I can't get medical care.
Dean's platform had a solid, sensible approach, and he wasn't ashamed to put it forward as a humane, genuine approach to solving a problem (a "market failure," unless you're just looking at CEO compensation, which has worked out very well for them). I was sold right away.
I think that a Democrat who develops and sells an approach to minimize these risks--to our health, our houses, our parents, our very lives--will do very well. (The Republicans can't and won't do this: First, because of their "magic of the marketplace" ideology; second, because their business model as individuals and as a party is to profit--commissions; campaign contributions--from our pain and risk by selling the bandaids for the cancer (see Medicare Part D).
As a Katrina victim said: "We deserve better."
NOTE See also the idea that this economy is a zero sum game for us, not the rich.