Thursday, October 28, 2010

The Stupid Economy

The third part in a series

One of the great undercurrents of contemporary politics is the growing sense economic frustration or even despair among a broad swath of the American public.

Consider the perspective of many a worker. Your factory closes down and the work is shipped to another nation, where the company can pay subsistence wages. Suck it up; it’s the free market. You’re a tradesperson, whose wages have been radically cut by a massive influx of illegal immigrants. Suck it up; it’s the free market. You’re a customer service representative whose job is outsourced. Suck it up; it’s the free market. You’re a tech worker whose wages have stagnated due to a persistent application of H-1B visa policies. Suck it up; it’s the free market. (It is worth noting, of course, that many of these outcomes are not the result of the pure operations of the free market; many of them have occurred or at least been exacerbated due to selective government intervention in the market.)

But then, when a hedge fund or banking group risks faltering, the mantra from the same talking heads that ridiculed the economic difficulties of other workers suddenly changes. No longer can the free market have winners and (sometimes massive) losers. Now, it’s a CRISIS. Not giving bailed-out money managers multi-million dollars bonuses is now an affront to capitalism. Our future depends upon funneling billions and billions of dollars to the very same people who almost caused a nuclear meltdown in our economy.

The point here is not to dispute the value or even the necessity of the various bail-outs that took place in 2008: the point is that many Americans, who lack PhDs in economics and may not have a great interest in the details of high finance, notice a surprising difference in elite attitude when the financial fortunes of multi-millionaires and billionaires are at stake than when the middle class suffers. These workers might find it awfully convenient that the conventional highways of the middle class are being undermined by government action in the name of the “free market” or “competition” or "fairness" or whatever while the private jets of the financial elite are being built, fueled, and distributed by the government.

Adjusted for inflation, the median wages for both high school and college graduates have so far declined in the 2000s. The past forty years or so have not been relatively kind to the middle class: the annual income (adjusted for inflation) of the bottom 90% of Americans has only grown 10% since 1973. Meanwhile, the fortunes of the upper-upper-upper echelon have improved substantially.

And this high economic elite has seemed to show little sympathy for the economic losers of the past decade or so. Indeed, many of these elite have advocated or at least advanced the cause of lowering workers' wages even more. One of the subthemes of elite defenses of illegal immigration is the belief that some jobs (such as farming, construction, childcare, food preparation, manufacturing, etc.) should not pay very much. The whole "jobs Americans won't do" stance is predicated on the belief that such jobs should not pay middle-class wages.

The decimation of manufacturing has put further pressure on the middle and working classes. This decimation is not wholly due to automation; if it were, we would still be producing things like jeans and televisions and computer devices in the United States. Further embittering many Americans is the belief that many countries engage in a de facto trade war with the United States---or would engage in a trade war if the US had not already unilaterally disarmed with respect to its manufacturing trade policy.

Whatever some talking heads may say about the need to "reeducate" workers, the high-tech sector has never fully recovered from the early 2000s. Wages and hiring in many high-tech fields have stagnated. Often, the same people who lament the supposed dearth of high-tech domestic workers are themselves working day and night to decrease the incentive for US citizens to study high-tech fields by continually campaigning for more and more foreign-trained workers (and therefore lower wages in this sector).

Running into a seeming dead end in terms of jobs, the Bush administration backed into a novel strategy to create a nation of investors: turn the real estate market into a commodities trading floor. Using the infrastructure set up in the 1990s (including changes in tax laws, the powers of certain government-backed enterprises, and so forth), the federal government---including the Bush administration and many in Congress---began to inflate a real estate and investment bubble.

This bubble was predicated upon making it easier for people to get bigger mortgages. If the post-Y2K economy couldn’t increase the wages of the middle class, the government could at least increase the ability of the middle class (and upper class and poor) to get into debt. Bush and others assailed high down-payment requirements as a barrier to the economic advancement of the poor. Congressional Democrats attacked any attempt to rein in the excesses of Fannie Mae and Freddie Mac, which contributed to the spending binge. Large financial organizations (with ties to both parties) pushed for the ability to leverage more and more debt and to create hocus-pocus investment instruments as a way of lining the pockets of an increasingly select few.

Unfortunately, an epidemic of speculation fueled by capacious borrowing is not a firm basis for a health economy. And so the crash came. Those who precipitated the crash were for the most part protected or promoted; the unconnected many were left with mountains of debt.

Barack Obama did indeed come into office facing tough economic circumstances. However, many Americans seem to be disappointed with his performance. Obama's fixation on securing long-term "progressive" reforms (in areas such as health-care) strikes many Americans not as just a distraction from the nation's economic growth but outright harmful to it. For them, the first two years of the Obama administration have been more like the end of the Bush administration: more stagnation, more despair, more diminished expectations. The fact that Obama and Congressional Democrats chose to go it alone on the stimulus bill also meant that they had little bipartisan cover: the Democratic leadership had singular responsibility for the success or the failure of the stimulus. And, to many, our nation seems still stuck in the economy of debt rather than the economy of progress.

This economic despair is an important backdrop to the current backlash against "elites." Many Americans are quite willing to accept growing economic inequality, but they will only do so if they feel like they are improving their own economic situations. The sense of economic stagnation only inflames conflicted anxieties about the elite.

Next: Whither the Elite?
Previously: The Resurgent Right, A Radical Gamble

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