The New York Times
By: Andrew Rosenthal
December 19, 2011
The middle-class agenda
Earlier this month, President Obama delivered his first unabashed 2012 campaign speech. Unlike his opponents, Mr. Obama acknowledged the ravages of income equality, the hollowing out of the American middle class. There is no hyperbole in the urgency he conveyed about "a make-or-break moment for the middle class, and for all those who are fighting to get into the middle class."
The challenge for Mr. Obama is to translate the plight of the middle class into an agenda for broad prosperity. Congress's inability to cleanly extend even emergency measures though 2012 -- including the temporary payroll tax cut and federal unemployment benefits -- underscores the difficulty. The alternative is continued decline.
Recent government data show that 100 million Americans, or about one in three, are living in poverty or very close to it. Of 13.3 million unemployed Americans now searching for work, 5.7 million have been looking for more than six months, while millions more have given up altogether. Even a job is no guarantee of middle-class security. The real median income of working-age households has declined, from $61,600 in 2000 to $55,300 in 2010 -- the result of abysmally slow job growth even before the onset of the recession.
Economic growth alone, even if it accelerated, would not be enough to restore the middle class. Mr. Obama refuted the Republican notion that market forces alone can ensure broad prosperity, when the economic health of American families also depends on government action.
It was a speech that called out for a plan. Here are the elements that matter most:
CREATING GOOD JOBS Despite Republican obstructionism, Mr. Obama must continue to offer stimulus bills that include spending for public works, high-tech manufacturing and an infrastructure bank. He must stress that obstruction costs jobs -- the bill recently filibustered by Republicans would have created an estimated 1.9 million jobs in 2012. The Republican stance also endangers future prosperity by denying needed infrastructure upgrades and making it likely that international competitors will outstrip America in jobs and technology.
In particular, Mr. Obama needs to debunk the notion that job creation is at odds with environmental protection. Republicans have portrayed opposition to the Keystone XL oil pipeline as a job killer. The truth is, oil addiction and the failure to invest in new energy sources will be far bigger job killers. What's needed is a plan to create millions of clean energy jobs and to link those jobs to workers in fossil fuel industries who otherwise would be displaced. The climate bill that died in 2010 would have begun that transformation; the need to try again only becomes more pressing with each passing year.
At the same time, Mr. Obama cannot ignore that most of the fast-growing occupations in America are lower-paying service jobs, like home health care and food service, in which it's all but impossible to make a living. To lift wages requires generous tax credits for low earners, a higher minimum wage, and guaranteed health care so that wages are not consumed by medical costs. Job training efforts must also focus on the service sector, helping to build so-called career ladders, say, from home health aid to licensed vocational nurse.
STOPPING FORECLOSURES In his Kansas speech, Mr. Obama said banks "should be working to keep responsible homeowners in their homes." That's too weak. The banks have never made an all-out effort to help homeowners and unless compelled to do so, they never will, because, in many cases, they can make more by foreclosing rather than by modifying troubled loans.
Federal agencies can keep working with some state attorneys general and try to settle with banks over foreclosure abuses in exchange for a commitment from them to modify some $20 billion worth of troubled loans, or they can conduct a thorough federal investigation into the banks' conduct during the mortgage bubble, looking for a far bigger settlement. The market is beset with $700 billion of negative equity; potential bank abuses are unexplored; the public is demanding accountability. Mr. Obama should opt for a thorough federal inquiry.
In the meantime, an antiforeclosure plan that is up to the scale of the problem would include unrelenting political pressure for principal write-downs of underwater loans, expanded refinancings for borrowers in high-rate loans, and forbearance for unemployed homeowners.
REGULATING THE BANKS Mr. Obama said banks are fighting the Dodd-Frank reform "every inch of the way."
The question is what he will do to fight back. A good start would be for him to tell the American public whether the law is capable of performing as intended. Is he confident that a major bank on the verge of failure could be successfully dismantled? Is he sure that risky bank trading will be sufficiently curtailed? If he is not confident that the law can work as intended, he must ensure better implementation or call for a revamp of the statute itself.
He can also personally advance specific Dodd-Frank provisions. Republicans are intent on destroying the new Consumer Financial Protection Bureau; Mr. Obama should try to recess appoint his nominee to lead the bureau, Richard Cordray, whom Republicans recently filibustered. Mr. Obama must make clear that he supports a strong Dodd-Frank disclosure rule on the ratio of the pay of chief executives to that of rank-and-file employees. Such disclosure is crucial to changing the corporate norms that have allowed for unjustifiably vast pay discrepancies.
RAISING TAXES, REDUCING THE DEFICIT Tax reform is essential. But there is no way to build public consensus for broad reform without first reversing the lavish tax breaks for the rich. In addition to letting the high-end Bush-era tax cuts expire at the end of 2012, Mr. Obama could call for all forms of income to be taxed at the same rates, rather than allowing lower rates for investment income, which flows mostly to wealthy Americans. Income tax rates also need to be adjusted at the top of the scale, so that the affluent, say, couples with taxable income of $400,000 a year, are not paying the same top rate as multimillionaires.
Mr. Obama should also drop his opposition to a financial transactions tax. That stance may have made sense when the banks were reeling from the financial crisis, but it is now at odds with a stated desire to rein in the financial sector and raise needed revenue.
Mr. Obama has more than established his willingness to cut the deficit, agreeing to spending cuts that, in fact, are too deep for the weak economy. Now he needs to dominate the deficit debate, not by trying to meet Republican demands for ever more spending cuts, but by explaining that more cuts would undermine the recovery. In the near term, high-end tax increases are a better way to control the deficit. They are less of a drag on economic activity than broad tax increases or federal spending cuts.
More jobs. Fewer foreclosures. Less financial risk. Progressive taxation. Those policies will give the middle class a fighting chance. But the list is not exhaustive. The pillars of a healthy middle class also include public education, Social Security, unions, child care, affirmative action and, not least, campaign finance reform, since inequality is reinforced by the political power of the wealthy.