This Time, We Can't Leave the Middle Class Behind

Even before we got to the White House, the President, the Vice President, and the economic team were crafting policies designed to offset the deepest recession since the Great Depression. Back in mid-December of last year, I remember a meeting in Chicago, with the snow swirling outside, as we began to plan the Recovery Act, the financial stabilization plan, and housing relief, all in the context of a budget that would bring down the trillion-plus dollar deficit we were about to inherit as quickly as possible.

I also remember the Vice President talking about the difficulties facing the middle class, struggles that predated the recession. With the campaign fresh in their minds, he and the President recalled that even in supposedly good times, when the economy was expanding and unemployment was low, the families they met on the trail were having far too much trouble making ends meet. Saving for college, paying for health care, keeping up with the mortgage payments... just making their basic budgets balance out at the end of the month seemed awfully hard in an economy that was supposedly solid.

Of course, that solid economy was fading fast; the recession was a year old, unemployment was rising, and helping people get back to work had become our top priority. But the longer-term, structural challenges that have been facing the middle class since long before the recession began were never far from the President's mind, which is why, shortly thereafter, he asked the VP to chair the Middle Class Task Force.

Today, in August of 2009, we're faced with yet another set of realities. After falling at a rate of about 6% from the last quarter of 2008 through the first quarter of this year, a rate of decline we hadn't seen in half a century, the economy contracted at a 1% rate in the second quarter of 2009. Yes, our economy is still ailing, but six months ago, economists worried the recession would descend into depression; now they're asking when recession will become recovery.

Here in the White House, however, recovery means something very specific, and it's different than what economists generally mean when they talk about it. According to the panel that decides when recessions officially begin and end, you don't need job growth or falling unemployment to declare that a recovery is underway. In fact, in the last two recoveries, it took 15 and 19 months, respectively, before the unemployment rate peaked.

That definition doesn't work for us. No jobs, no recovery.

But -- and this is the real subject of this post -- job growth isn't enough either. Remember, unemployment fell to below 5% at the end of the last expansion, but middle-income families ended up worse off, in real dollar terms, than they were before that expansion began. The productivity of our economy increased by 19% from 2000 to 2007, but the real median income of working-age households fell $2,000. The share of Americans living in poverty was actually higher in 2007 than it was in 2000.

How could this happen? In fact, the arithmetic is disarmingly simple. If the economy's growing, but middle-class and low-income families are falling behind, then the growth must be accruing to the top of the scale. And that's exactly what happened.

Some of the best data on income inequality are collected by two economists: Emmanuel Saez and Thomas Piketty. Their data go back almost to the beginning of the last century, allowing us to make some pretty amazing observations, like the one shown in the figure below. Income concentration, measured as the share of income going to the top 1% of households, was higher in 2007 (23.5%) than in any year on record going back to 1913, with one ominous exception: 1928, the height of the speculative, bubbly "roaring 20s" and the year before the stock market crashed and the Great Depression began.

For middle-class families to be part of the next recovery, this trend must reverse.

Yes, we want to see a GDP recovery take hold as soon as possible, and once we start seeing robust, consistent job growth we'll know we're solidly on track. But even then, we won't be done: not until the prosperity we're generating reaches everyone who's contributing to it, not until all the bakers get their fair slice of the pie -- not just the owners of the bakery or the investors in the bakery, but the men and women who are actually doing the work.

Here's what the President said about this way back in February 2007, when he announced his candidacy:

... let's be the generation that ensures our nation's workers are sharing in our prosperity. Let's protect the hard-earned benefits their companies have promised. Let's make it possible for hardworking Americans to save for retirement. And let's allow our unions and their organizers to lift up this country's middle class again.

Let's be the generation that ends poverty in America. Every single person willing to work should be able to get job training that leads to a job, and earn a living wage that can pay the bills, and afford child care so their kids have a safe place to go when they work. Let's do this.

Though he may not have realized at the time, the President-to-be was really describing the work of the Middle Class Task Force. Vice President Biden, the Task Force staff, and our members at all the cabinet agencies will do everything we can to make sure that the next recovery stacks up very differently than the bars in the graph above. The middle class won't get left behind again.

This post originally appeared on the White House Briefing Room Blog.

Jared Bernstein is Chief Economist to Vice President Biden, and Executive Director of the Middle Class Task Force

Comments

[R2D2-51]

That depends on which side your bread is buttered on, because in my lifetime, that is precisely all they have ever done, and the only people who ever benefited from this process is the top 1% of income producers. You need to wake up and realize that those who make the great money use it to protect it and continue the process. Those on the lower half of the food chain will never have a seat at the table to change it, because they will never have enough money to buy a seat of their own, and that will never change Homer.

They laugh all the way to the bank when they hear comments like yours, because you believe in what they have spoon fed you to keep you in tow.

The late Edward Bernase, Sigmund Freud's nephew, and considered the Father of public relations who created the social phenomena of "Engineered Consent" once commented, that "manipulating the masses is easy, because the American people are stupid".

[R2D2-51]

The IMF, the World Bank, the FED and the aggregate wealth that keeps this dog and pony show in the column of the status quo won't let that happen.

The game is over. Just go around and take a survey of what our young future generation of American's feel about their own role in the 21st century. In mine, it was no hope, no direction and guidence and quite frankly delusionment except a few who were just going through the motions of life day by day.

If you think the future wealth of the American GDP is ever going to be distributed with equity to all who helped create it, your on another planet, lest a repeat of 1776.

Unfortunately, that''s the only way America's future third world status will be averted.

[OldHick]

The stock market, the last bastion of free wheeling finance, will surely fall when Obama spends until the Asians no longer pay the bills.

The middle class has no voice - the special interests have Washington - they bought both parties.
The government is wrong in doing this. They are responsible for the wealth of the nation, not just the bankers and themselves. In their interpretation of the Republic that is what it is for, not the "Middle Class". It is not a government FOR THE PEOPLE, or in other words not a commonwealth. This is gone and possibly will never come back, and with it our nation and its ideals.

[jwa1313]

Not interested anymore -- sell your snake oil to the pubs. They (and their padrones) seem to be the only ones with money to burn -- and really, that's what "bipartisanship" is about, correct?

Former liberal, still progressive --

John W. Anthony

[HTooley]

How about something that really shows your committment to the 'Middle Class'. How about instituting a 32 hour work week? That may necessitate overtime, which in turn will make it more profitable for companies to hire more people.

While 'shovel ready' takes care of some construction trades, the skills of those laid off or let go run the gamet of an increasingly service based economy.

Getting the 'green economy' up and running will take the full course of Obama's tenure in office if it is not delievered stillborn out of the legislature.

People need to work, not only for a living, but to satisfy the needs of their souls. The stimulus is tepid at best and there is no way, no way that this economy can be turned around fast enough to deal with the millions, yes millions of people who have lost their jobs. Be bold. Create the next CCC.

"I know your deeds, that you are neither cold nor hot. I wish you were either one or the other! So, because you are lukewarm—neither hot nor cold—I am about to spit you out of my mouth."

Get Hot Mr. President....Get Hot!

[VikingQuest]

"How about instituting a 32 hour work week?"

Can't handle working 5 days a week or what?

[HTooley]

Of course I can, and I have for close to 40 years, but the issue is about getting as many people working as we can. I've been thrifty, and can afford a 20% cut. I know that many people can't. But I also know that we are going to have millions of people who are going to lose their unemployment benefits soon, with more on the way. Think of the snowball effect that will have on the economy. Demand will further shrink, some people will turn to crime. Families will dissolve. If we all forgo 10% (4 hours a week), we can put many people back to work. Maybe you can spend some more time with your kids or with your aging parents.

There has been a study that close to 50% of people with mortgages will be underwater on their loans within the year. Take a look at your neighborhood. Think about all the brown lawns that will sprout up (at least out here in California, maybe weeds where you live). I can look no further than across the street to see one If we don't break this cycle, and soon, then we will all see our living standards fall.

To paraphase Ben Franklin, "We can all hang together or we'll all hang separately".

[carolrhill814]

You know what I tired of being called the Middle Class without us the United States would not run the way it is today so to me we are Primary Class the rich people think they run the Country and they are very wrong the only thing they do is find out a way not to pay their taxes as they should so us The Primary Class picks up their taxes they manage to avoid paying so I think we are far more important than the rich people. Just look at what Madoff did and got away with for years and years and all of us are going to pay for that in so many ways we will really not know.

[topkatnc]

It is time to tax the rich like they have never been ....I want to hear them in the streets protesting...

[pwhunter]

The top 1% of earners, the so called "rich," already pay about 50% of the tax burden in this country. And if Obama has his way, they will pay even more. This idea that the rich don't pay taxes is one of the great myths of our time.

[John Mainstream]

5 million Americans will lose their jobs in 2009, and million of more in 2010. Dems now get 100% of the credit for the continued job loss.

[notb observer]

Nice. Way to take a serious matter for millions of Americans and try to shift responsibility to the Dems. No matter what twisted logic you or the Repubs might use, too many people are by now painfully aware that this historic recession, and the near collapse of our "fundamentally strong" economy occurred during, and as a direct result of Republican policies. Policies aimed at enriching the corporations through massive sustained tax cuts, and the elimination of any rules that might impede their orgy of limitless greed.
The tax cuts pushed by Bush and his fellow Republican legislators were supposed to be GOOD for the economy, remember ?! Their entire argument was based on the false premise that the rich would grow the economy if only we didn't take away so much of their money.
For many years, liberals, progressives and anybody else with half a brain knew that despite the tax breaks and many other loopholes afforded to the corporate elites, what they were really doing was outsourcing jobs and hiding their real profits in offshore banks and numbered Swiss accounts.
To this very day, the serial liars who make up the Republican party will continue to argue that everything would get better if only we could cut the taxes on the rich.

[Kaville]

Thank you Jared Bernstein! That we finally have politicians in the White House that "get it" encourages me greatly. But, we now have to figure out how to be heard over the din of those extremists who think that the nation's wealth spreading beyond the top 1% is socialism. I do believe there are reasonable people out there. We proved that in November. But, their voices are being drowned out and that is entirely the intent! You found those voices in November and I know you can find them again!

Please, whatever you do, do not give up the fight for a public option on healthcare reform! I know the pressure is great! But 45 million people without healthcare in one of the richest nations in the world is just wrong! And how we justify it, I cannot understand.

At a fundraiser last night, I stood with my sign across the street from a group of "birthers" and "teabaggers" who really appear to not be in their right minds. But, we took the high road and did not engage in insults and obscenities. Keep sending the message to the REASONABLE people of America and eventually they will hear! Let's just hope it's not too late when they do.

[R2D2-51]

Ditto!
Those who have used their wealth and surrogates to promote fear and misinformation have taken advantage of the vast underbelly of the American underclass they engineered to become so functionally illiterate.

We must counter the domestic insurgency with the same bully pulpit, that Reagan used to widen the stratification of our nation's peoples to undo the damge he helped foment.

I applaud your candid forthrightness in speaking truth to power and what needs to happen.



keep thuis disparitydid, albeit for a far greater humane reasonKnowing tehir demographcs is easy havingso keep us out of having a seat at the table have done their work promyting tehir propaganda to manipulate the minds of the not so well informed, and its for me the saddest time in America in my lifetime to see that these caustics vopices being manipulatedGoebbels style

[MrRex]

And it is this top one percent leading the bottom 99 in a fight against what is in the bottom 99 percent's interest. Fighting against tax reform, health insurance reform, education reform, social secutrit reform, medicare reform, or any other reform is to their advantage.
They keep the "rabble" so stirred that nothing of substance can be done and our democratic republic becomes a "mobocracy".
Our leaders and our population have been bought, one by actual money, the other by fear to act against their self interest.

All shall pay when we hit bottom, even the 1 percent.

[Eggsackley]

The way to start restoring some balance is to undo the Bush tax cuts for the wealthy, and then add more taxes on them. I am not advocating a return to the extremely high top tax rates of the fifties. But, unless those in the top brackets pay more, the concentration of wealth at the very top will keep accelerating, and everyone else will be ground into the dirt. I don't see any other way to start cutting back the deficit, and fund the investment that is needed in green technology and infrastructure. The wealthy say taxing them is class warfare. So what's wrong with a little payback?. The Bush tax cuts were class warfare; the wealthy benefited at the expense of the middle class and the poor. Let's restore some balance.

[dieselis]

I live in a rural state I stopped by my senators office yesterday. He wasn't in his aids took very good care of me. We'll see how it goes from here,

[bsazur]

Why does the chart include capital gains as income? The chart seems to reflect stock market gains and the real estate bubble. What will the chart look like since the 2008-2009 bear market? What would the chart look like without capital gains?

[Eggsackley]

Good question. I am thinking that they are talking about taxable capital gains. The profits that have been realized by selling assets that gained in value after being purchased. I don't know how else they could put a value on them. Hopefully, somebody else knows if this is correct.

[bsazur]

Why would the chart include capital gains as income? The chart seems to reflect stock market gains and and recent real estate bubble. What will the chart look like since the 2008 and 2009 bear market? What would the chart look like without capital gains?

[Baltotoast]

There would be no where near as much concentration at the top. The chart is highly misleading and obviously done to support the authors point. However to call capital gains "income" is not accurate, at least for how the vast majority of Americans think about it. Demerit points to the poster for misleading the audience.

[DaCoach]

I would suggest that the disparate involvement in the legislative process ultimately has driven the redistribution of wealth. Look at the calendars of our politicians and you will see that there is a vast imbalance in access favoring the lobbyists who typically represent big business and big money. We have a tax code written by those who have the ability to influence their political representatives.

If I were to try and get legislation passed, what would be my success level? Compare that to the many riders inserted in non related legislation that favor special interests. Our Congress includes attorneys of more than 50% of Senators and 33% of Congressmen. Is it reasonable to expect they actually represent the citizenry?

The system is terribly imbalanced and until our elected leaders are more representative of the people, parity will be nothing but an unfulfilled dream. I am convinced that only term limits and public financing of all federal elections can redress the problem.

[notb observer]

Term limits and publicly financed campaigns are definitely the way to go. Nothing would do more to clean up the corruption than these two simple steps. Take the monetary incentive out of working as a Representative by limiting their terms, and shut out the lobbyists and other special interest by outlawing any contributions from corporations. Senate terms also need to be reduced from 6 years, perhaps down to 3 or 4 years. There is too much that can happen within 6 years without the People having a say on how their state senators are performing.
If lobbyists and corporations want to have input into the election, they can exercise their individual right to vote like the rest of us. If corporations want to "participate to the Democratic process" by shelling out millions to electoral campaigns, then that money should be put into a pot that is available to all members running for election. If our elected Representatives are so "concerned" about the ability of corporations and special interests groups to "have a say", then I'd suggest as a token gesture to give every "corporation" or business a single vote.
Of course, none of this will ever happen, because our Representatives are very happy with the way the system is serving them as it is !

[lilian101]

"The middle class won't get left behind again."
Sounds like a song by the Who, "We don't get fooled again, No No."