NDN has long pointed out that median household income dropped by roughly a thousand dollars during the Bush era, creating a middle class that was weakened even prior to the great recession. Now, Census Bureau data tells us that household income has again dropped, meaning that everyday Americans have taken a loss over the last decade. From the New York Times:
In another sign of both the recession and the long-term stagnation of middle-class wages, median family incomes in 2008 fell to $50,300, compared with $52,200 the year before. This wiped out the income gains of the previous three years, the report said.
Adjusted for inflation, in fact, median family incomes were lower in 2008 than a decade earlier.
"This is the largest decline in the first year of a recession we've seen since the Census Bureau started collecting data after World War II," said Lawrence Katz, an economist at Harvard University, referring to household incomes. "We've seen a lost decade for the typical American family."
Coupled with rising costs, specifically in health care (I'm sure you've heard about this recently), energy, and pensions, dropping incomes mean that the economic wellbeing of everyday Americans is significantly worse than a decade ago. Add in all the wealth destroyed by the systemic financial meltdown and the collapse of the housing market, and we're talking about an economically crippled American middle class.
The last few months have not been particularly good ones for Democrats. That's the bad news. The good news is there a clear roadmap for how they can use the coming months to get back on track, and it revolves around staying relentlessly focused on the economy and the struggle of every day people.
1) The Lack of Income Growth for Average Families is the Greatest Domestic Challenge Facing America Today. Depending on how you cut the data, American families have not seen their incomes rise in at least eight, and perhaps, ten years. Even in the Bush recovery, which was by many measures, robust, median incomes declined, poverty levels increased, debt loads exploded. The typical American family ended the Bush era making $1,000 less than at the beginning.
Basic economics tells us when productivity increases wages and incomes rise. When GDP expands, jobs are created at a certain rate. Neither of these events took place in the Bush era, leading us here at NDN to argue that there is a large structural change being brought about by globalization that is making it harder for the American economy to create jobs and raise the standard of living of every day people.
That median incomes dropped during a robust economic recovery made the Bush recovery different from any other recovery in American history, and has made the current Great Recession different from other recessions. The American consumer was already in a very weakened state before the current recession, which is why the recession has been more virulent than many predicted, and why the coming "recovery" might be so anemic. The economy seems to be going through profound, structural change, making old economic models anachronistic. We are literally in a "new economy" now, one that is not well understood, and one that is confusing even the President's top advisers.
Simply put, getting people's incomes up is the most important domestic challenge facing those in power today. It is not surprising that other issues like health care, energy policy and climate change are being seen through a prism of "will this make my life, my economic struggle better today?" because so many families have been down so long, and things have gotten an awful lot worse this year. Regardless of what they hope to be graded on by the public, the basket of issues that will do more to determine the success of the President and his Party is both the belief that things are getting better, and the reality that they are for most people.
2) The Public Believes the Economy Is By Far and Away the Most Important Issue Facing the Nation Today. In poll after poll this year, the public has made it clear that the economy is their most important issue, with really nothing coming in a strong number two. The new Pew poll out this week maintains the basic ratio we have seen for months: mid 50s say the economy is number one; 20 percent of the American people say health care is their number one concern; and literally "zero" pick energy (see the chart to the right).
While one could mount an argument that one should not govern by polls, one can also ignore them at their own peril. The country wants their leaders focusing on what is their number one concern - their ability to make a living and provide for their families in a time of economic transformation - which also happens to be, in this case, the most important domestic issue facing the country.
My own belief is that one of the reasons the President and the Democrats have seen their poll numbers drop is that they have spent too much time talking about issues of lesser concern to people while the economy has gotten worse. There is a strong argument to be made that the President and the Democrats have taken their eye of the economic ball, and are paying a price for it. This doesn't mean the President shouldn't be talking about health care, climate change, education, immigration reform, but they must be addressed in ways that reflects both their perceived and actual importance; and as much as possible discussed in the context of long term and short term benefit for every day people and not abstract concepts like "recovery," "growth," "prosperity," which in this decade are things that have happened to other people.
We have long believed that the lack of a sufficient governmental response to the increasing struggle of every day people has been the central driver of the volatility in the American electorate in recent years (see here and here). Given the poll and economic data of recent months it is possible that the conditions which have created this volatility remains, and simply cannot be ignored for too long.
3) The Way Forward - Make The Struggle of Every Day People The Central Focus Of the National Debate. The great domestic challenge facing President Obama is to ensure that, in this new age of globalization and the "rise of the rest," the country sees not "growth" or "recovery" but prosperity that is broadly shared. Until incomes and wages are rising again, fostering broad-based prosperity has to be the central organizing principle of center-left politics. It is a job we should be anxious to take on given our philosophical heritage, and one that we simply must admit is a little harder and more complex than many have led us to believe.
Luckily, the President has been given three significant events in September to begin to make this rhetorical and governing turn - Labor Day next week, and the G20 and UN General Assembly meetings in late September. He can use this events to re-knit together his argument, weaving in health reform and energy/climate change (and we believe immigration reform too) along the way. For there is no broad-based prosperity in 21st century America without health care costs coming down (which has to happen to allow us to cover more people), and a successful transition to a low-carbon economy. Even though the Congressional committee and legislative process requires these to be separate conversations, in fact they are one conversation, one strategy for 21st century American success, one path forward for this mighty and great nation.
Vice President Biden's speech about the economy today is a very good start in this needed repositioning. But much more must be done. In a recent essay I wrote:
There have been calls from some quarters for a 2nd stimulus plan, an acknowledgment that what the first stimulus has not done enough to stop the current economic deterioration. This may be necessary, but I think what will need to be done is much more comprehensive than just a new stimulus plan. Future action could include a much more aggressive action against foreclosures, a more honest assessment of the health of our financial sector, an immediate capping of credit card rates and a rollback of actions taken by credit card issuers in the last few months, a speeding up of the 2010 stimulus spending, a completion of the Doha trade round and a much more aggressive G20 effort to produce a more successful global approach to the global recession, the quick passage of the President's community college proposal, enacting comprehensive immigration reform which will bring new revenues into the federal and state governments while removing some of the downward pressure on wages at the low end of the workforce, and recasting both the President's climate and health care initiatives as efforts which will help stop our downward slide and create future growth.
These are some thoughts on how to re-engage the economic conversation but many other people also have great ideas on what to do now that the specter of a true global depression has been averted, and we have the luxury of talking about what to do next. Which is why NDN is launching a new series of discussions on the global and American economies. We begin next week with Dr Jagdish Bhagwati and Dr. Rob Shapiro. Keep checking back on our site for the next events in this important new series based in Washington, DC but also webcast for anyone to watch no matter where they are.
The bottom line - the recent decline in the President's poll numbers are reversible. The key is for he and his Party to make the struggle of every day people their number one rhetorical and governing concern. A "new economy" is emerging in America, and it is not has been kind to most Americans. Getting incomes and wages up in this new economy of the 21st century is in fact the most important dmoestic challenge facing the country, and one the American people are demanding a new national strategy for. This fall is the time for the President to make it clear to the American people that he understands their concerns, has a strategy to ensure their success in this new economy, and will make their success the central organizing principle of his Administration until prosperity is once again broadly shared.
More than one in every eight homeowners with a mortgage was behind on home loan payments or in some stage of foreclosure at the end of the second quarter, as mounting unemployment aggravated the housing crisis, the Mortgage Bankers Association said on Thursday.
The percentage of loans that were in foreclosure or at least one payment past due rose to 13.16 per cent, the highest increase since the MBA began keeping records in 1972 and a jump of more than a percentage point since the first quarter.
Jay Brinkmann, chief economist at the MBA, said signs were growing that mortgage performance is being affected more by unemployment than by the structure of risky home loans, indicating a new stage in the foreclosure crisis that may not be easily addressed by government loan modification programmes.
While the proportion of foreclosures started on borrowers with subprime adjustable-rate mortgages fell dramatically in the second quarter, foreclosure starts on traditional prime fixed-rate loans saw a dramatic increase. Prime fixed-rate loans accounted for one in three foreclosure starts at the end of the second quarter. A year ago they accounted for one in five.
"There has been a shift in the problem from one driven by the types of loans to one driven by macro problems in the economy and drops in house prices," said Mr Brinkmann.
It seems like we still must, as NDN has argued since last September, do more to keep people in their homes.
New figures showing a decline in wholesale prices and a drop in new-home construction highlighted how weak the economy remains, even as some optimists declare the recession to be over.
Producer prices fell more than expected in July as the costs of food and energy slipped, the Labor Department reported on Tuesday. The 0.9 percent monthly decline came after three months of increases, and suggested that demand was weak up and down the ladder of production, from consumer goods to intermediate goods like chemicals and rubber to raw materials.
Producer prices declined a record 6.8 percent from last July, when crude oil prices soared above $145 a barrel and pushed the costs of fuels, food and other products sharply higher, before they fell back amid the global financial crisis. The decline in the last 12 months is the largest drop in 60 years, since the government starting keeping such records.
So-called core prices excluding food and energy costs fell 0.1 percent, their second monthly decline of the year.
...
Despite several glimmers of rising prices and increased activity in the housing market, the Commerce Department’s report on housing starts and building permits showed that the market for new homes remained weak with building loans tight and so many foreclosures on the market.
New-home construction fell a seasonally adjusted 1 percent in July from a month earlier, to an annual rate of 581,000, the government said, and building permits were down 1.8 percent from June. Housing completions also dropped, falling 0.9 percent for the month.
The housing piece is not particularly surprising, as that market remains weak overall. At a time when unemployment is so high and houses so diminished in value, now seems an unlikely time for people to sell their homes to move for a new job and therefore have a house built.
While the economy seems to be getting worse more slowly, it is still getting worse and remains incredibly unstable. The one element able to raise producer prices most quickly, a rise in energy prices, could be disastrous.
Tremendous excess capacity remains in the economy, and many of the pieces of the stimulus that have yet to come online, namely infrastructure spending, are needed in the coming months (despite what we may hear on conservative cable networks). These projects will be noticed and helpful, both to the economy and the politicians who made them happen.
David Brooks has a very good column in the NYTimes today about how we got to where we are today, and the daunting economic challenges ahead. His sober analysis of our economic situation is part of a growing tide of recent analysis looking beyond the momentary crisises, and which are beginning to move the economic debate beyond the stale, brain-dead bromides of the terribly disapointing age of Bush.
Here’s one way to look at the politics of our era: We’ve moved from The Age of Leverage to The Great Unwinding.
For about a generation, the U.S. surfed on a growing wave of debt. The ratio of debt-to-personal-disposable income was 55 percent in 1960. Since then, it has more than doubled, reaching 133 percent in 2007. Total credit market debt — throwing in corporate, financial and other borrowing — has risen apace, surging from 143 percent of G.D.P. in 1951 to 350 percent of G.D.P. last year.
Charts that mark these trends are truly horrifying. There is a steady level of debt through most of the 20th century, until the mid-1980s. Then there is a steep accelerating rise to today’s epic levels.
This rise in debt fueled a consumption binge. Consumption as a share of G.D.P. stood at around 62 percent in the mid-1960s, and rose to about 73 percent by 2008. The baby boomers enjoyed an incredible spending binge. Meanwhile the Chinese, Japanese and European economies became reliant on the overextended U.S. consumer. It couldn’t last.
The leverage wave crashed last fall. Facing the possibility of systemic collapse, the government stepped in and replaced private borrowing with public borrowing. The Federal Reserve printed money at incredible rates, and federal spending ballooned. In 2007, the federal deficit was 1.2 percent of G.D.P. Two years later, it’s at 13 percent.
The crisis response more or less worked. Historians will argue about the Paulson-Geithner-Bernanke reaction, but the economy seems to be stabilizing. And now attention turns to the task of the next decade: slowly unwinding the debt that has built up over the past generation.
Americans aren’t borrowing the way they used to, but the accumulated debt is still there. Over the next many years, Americans will have to save more and borrow less. The American economy will have to transition from an economy based on consumption and imports to an economy with a greater balance of business investment and production. A country that has become accustomed to reasonably fast growth and frothy affluence will probably have to adjust to slower growth and less retail fizz.
The economic challenges will be hard. Reuven Glick and Kevin J. Lansing of the San Francisco Fed estimate that Americans will have to increase their household savings rate from 4 percent to 10 percent by 2018 to restore balance. That, they write, will produce “a near-term drag on overall economic activity.” Meanwhile, capital and labor will have to flow from sectors that depend on discretionary consumption to sectors based on research and investment.
But it’s the political challenges that will be most hellacious. Basically, everything that a politician might do to make voters happier in the near term will have horrible long-term consequences. Stimulate the economy too much now and you wind up with ruinous inflation down the road. Preserve failing companies and you wind up with Japanese stagnation. Cushion the decline in living standards with easy money now and you just move from a housing bubble to a commodities bubble.
The members of the political class face a set of monumental tasks...
Read on to see his recommendations, all of which are a little less compelling than his narrative on how we got here. What is most interesting to me, however, is how Brooks' analysis is itself a complete condemnation of the cultural and economic impact of the recent conservative ascendency. His story rightly points out that this "Age of Leverage," or as Paul Krugman has called it, "The Great Unraveling," was a manifestation of the Reagan Revolution. Rather than being conservative in the classic sense, Brooks has correctly and helpfully begun the labeling of this era of our history as it will be known to future generations - a terribly reckless, irresponsible time where our leaders, in the grip of impractical ideologies, failed to do what was required to ensure American greatness and success in the 21st century.
Digging America out from the hole that been dug by years of reckless, ideological and impractical conservative government remains the greatest governing challenge of this early part of the 21st century, a job that increasingly looks like - given its depth - will last long past the Obama Presidency.
Finally, for all these reasons, I think it is time for us to move beyond the concept of "recovery" as a goal of our economic strategy. Who wants to go back to what we had? A time of bubbles and declining wages, of a policy designed for the few at the expense of the many? Obama has begun to move beyond this frame with his recent attempts to use the term "new foundation." But there is an urgency to this mission - for I think very few Americans are interested in recovering - or going back to - that old economy of the late 20th century and this terribly destructive conservative ascendency.
By Simon Rosenberg and Robert Shapiro, September 23, 2008 - This narrative setting essay argues that leaders must do more to staunch the foreclosure crisis, which was at the heart of the financial meltdown.
A decade of reckless deregulation, mismanaged regulation and equally reckless private mismanagement has now brought the American and global economies to a crisis point. Investment banks, hedge funds and other financial institutions have borrowed hundreds of billions of dollars to sink into securities widely recognized to entail extraordinary risk, passing that risk along to millions of Americans whose retirement plans, pension funds and money market accounts found their way into funds set up by such mismanaged financial titans as Lehman Brothers, Bear Stearns, Merrill Lynch and AIG. Through it all, the White House, Treasury and Federal Reserve have practiced their own reckless regulatory mismanagement, allowing the gradual accretion of the biggest financial house of cards in history. Now it has caught up with them and the rest of us, and those who let it happen are asking taxpayers to spend hundreds of billions of dollars to clean up this mess.
This crisis is far from over, and its effects are still spreading. We need a broad plan that will actually work to restore financial and economic stability. But those who have had little or no hand in it – America’s taxpayers and most Members of Congress – should not be steamrolled into giving a blank check to those in the Administration who failed to head off this crisis. First, the check they want us to write is unlike any ever written before during financial crises. When Washington last took over the failing assets of private institutions, during the savings and loan bailout, taxpayers first took over the institutions themselves and then sold the assets, while the regulation of the remaining S&Ls was tightened and reformed to preclude another round of the same problems down the road. This time, Congress is being told that it must use taxpayers’ money to buy up the degraded assets of hundreds of financial institutions while they continue operating as private entities and without any guarantee of regulatory changes that will prevent it from happening the next time. That’s a bad bargain and terrible policy.
Second, it’s doubtful that the plan will even work in its own terms. If the Paulson Treasury plans to buy the deteriorating securities at their current, low market values, it may help the institutions holding them to avoid further deterioration, but it won’t reduce the losses they’ve already taken. Consequently, this bailout cannot actually lead us out of the crisis – unless the Treasury plans to pay these institutions above-market prices for the tanking securities they now hold, which would produce the largest direct transfer of money from taxpayers to shareholders and executives ever seen.
Third, the plan does not address the forces which continue to drive this crisis. At the base of the pyramid scheme that has infected our financial markets – underneath the credit default swaps and collateralized debt obligations created with borrowed money to “guarantee” mortgage-backed securities created with more borrowed money, in a housing market swollen by a historic bubble — lies the only real assets in the picture, the mortgaged homes of tens of millions of Americans. On that critical score, the Administration plan offers nothing. The only way to stop the cascading financial crisis consuming not only investment banks, investment funds, mortgage lenders and insurance companies, but also pieces of most Americans’ retirement security, is to stabilize the housing market from which all of the rest arises. The Treasury and the Administration propose to use taxpayers to bail out the institutions which speculated in the securities based on that market. Given the system’s current precarious position, a bail out of some kind cannot be avoided. But our government owes at least as much attention to homeowners facing foreclosure. If the Treasury and Fed had been willing to spend $85 billion on loans to strapped homeowners, as they did to AIG last week, the crisis might never have crested into the conditions that now require a system-wide bailout.
These mortgages are at the root of the crisis. It’s their mounting defaults driving down the overall housing market which has brought venerable banks like Lehman Brothers and Bear Stearns. Before Congress leaves this week or next, it should enact legislation that either provides a mechanism for direct loans to people to avoid foreclosure or allows them to renegotiate their mortgages. This single step will keep untold numbers of people in their homes, help stabilize the housing market, help contain the crisis at one of its critical origins, and thereby help shore up the financial system. Paired with a program to provide more liquidity to financial institutions and an orderly way to write down their failing holdings, this step could finally take us past this crisis.
Even so, only a small share of the costs of this historic mismanagement are apparent today. This financial shock, on top of the housing and energy shocks that preceded it, have almost certainly pushed our economy into recession. That will further reduce the value of the assets held by tens of millions of American through their pension funds, retirement accounts, money market and mutual fund investments. The squeeze will be hardest on the rising numbers of Americans who will also lose their jobs. The need to help these people and millions of others keep their homes is urgent, then, for a host of economic and social reasons.
When Congress returns in December or next year, it will find itself with far fewer resources to finance badly-needed new initiatives in health care, climate change and tax policy. One urgent order of business, however, will be entirely within its capacity: adopt and apply strict and appropriate transparency, capital and other regulatory standards to all financial institutions. And the politicians who hailed the hands-off attitude that enabled this crisis to fester and break out, and who now blame greed instead of their own negligence, must be held accountable.
NDN's Globalization Initiative was established to promote economic growth and restore broad-based prosperity in our globalized economy. Chaired by Dr. Robert Shapiro, Under Secretary of Commerce for Economic Affairs under President Bill Clinton, the program works toward modernizing our healthcare and energy policies; investing in 21st century skills for our workers and students, rebuilding America's infrastructure; and accelerating innovation across the economy. NDN also plays a major role in the debate over how to best manage the Great Recession and the crises impacting our housing and financial markets.
Thoughts on Wall Street 2.0 by Simon Rosenberg, 4/9/2009 - Roseberg explored the crisis of trust between the American people, the world, and Wall Street.
Friedman on a Carbon Tax by Michael Moynihan, 4/8/2009 - Moynihan discusses Thomas Friedman's column calling for a carbon tax and delves into the politics of pricing carbon.
Carbonomics by Michael Moynihan, 4/2/2009 - Moynihan looks at the connection between pricing carbon and the future of the American automobile industry.
Is Cap and Trade a Dead Policy Walking?, 4/1/2009 - Shapiro arguest that the political calculus behind cap and trade has changed and that the time has come for a simple carbon-based tax.
Spend? Save? The debate continues by Simon Rosenberg, 2/11/2009 - Building on a previous post, Rosenberg follows the growing debate about whether American families should be focusing on saving.
The Utter Bankruptcy of Today's Republican Party by Simon Rosenberg, 1/28/09 - Rosenberg argues that Republican opposition to the economic recovery package represents the ideological bankruptcy of the party.
A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
Today, as Republicans release a manifesto labeled as an alternative budget and President Obama meets with CEOs of major banks, we're pleased to present you with some helpful thinking on these issues.
Hope and Optimisim II by Michael Moynihan, 3/16/2009 - Moynihan looks at some recent developments in the financial world and sees cause for cautious optimism.
Weekly Kos Poll, GOP Still at 16 Percent, Messaging the Economy by Simon Rosenberg, 3/14/2009 - The strongest argument for President Obama's economic plan is that, despite strong productivity and GDP growth over the last eight years, the typical American family saw its standard of living decline.
The Utter Bankruptcy of Today's Republican Party by Simon Rosenberg, 1/28/09 - Rosenberg argues that Republican opposition to the economic recovery package represents the ideological bankruptcy of the party.
A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
While one could mount an argument that one should not govern by polls, one can also ignore them at their own peril. The country wants their leaders focusing on what is their number one concern - their ability to make a living and provide for their families in a time of economic transformation - which also happens to be, in this case, the most important domestic issue facing the country. 
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