These are the facts and they are indisputable:
- A record 46.2 million people lived below the poverty line in 2010
- The poverty rate was 15.1 percent, the highest in 52 years
- The median male worker’s income, when adjusted for inflation, is less than what it was in 1968
- Last year, the bottom 60 percent of American households saw income fall, while those making $100,000 or more saw income rise
Those are four cherry-picked, terrible stats that came out of the recently released census data. There are very few bright spots that do little to distract from the general picture painted by this data – the divide between the wealthy and the poor in the United States is getting worse, not better.
There’s going to be tough times. History is cyclical. When the times get tough, the tough get going. Whatever sentiment you might cling to in these times, there’s one aspect of our current predicament that is especially disconcerting: the complete inability of the US government to produce any sort of action on the economy.
Through a complete lack of action bordering on suicidal (Congress nearly defaulted on its debt, leading the S&P to downgrade US debt), the government has communicated to every business in the country that they cannot rely on anything – everything might change, nothing might change.
President Barack Obama, who really needs a hug and a cigarette right now, brought in a new jobs plan in an attempt to provide some sort of guidance and relief to unemployed workers and the economy as a whole. Republicans have roundly rejected it for including some new taxes, which would happen only if the super-committee cannot offset the cost.
Conservative economists generally don’t like it; liberal economists generally do. This should surprise absolutely nobody. Partisan lines are so tightly drawn that I’m looking forward to Congress having trouble officially recognizing that the sky is blue.
Blame whomever you would like, but there is no such thing as a bi-partisan bill anymore. The most recent bill that would seem to be an airtight bi-partisan action – the Gang of Six budget proposition – was panned by both sides. As such, we have been left lacking any meaningful economic legislation.
In my armchair economist opinion, this results an a terrifying double whammy effect that is rendering the economy and the government ineffective. The economy runs on confidence in the same way an engine runs on oil – at its most efficient and healthy. Confidence gives businesses reasons to take risks – such as hiring workers, taking out loans, and developing products. Many disagree, most notably Paul Krugman. But what is important to acknowledge in Krugman’s argument as well as general consensus is that “confidence” usually refers to the belief that things are getting better. In this situation, I argue that confidence is not necessarily the belief that things are getting better, but rather having some stability and predictability to the current economy.
Businesses are suffering from a crisis of confidence for two main reasons: they have no idea what is going on in the economy and they have no idea what the government might do. If at least one were to stabilize, businesses might be able to create effective strategic plans. Without either, they have to maintain a large liquid capital base as insurance against disaster.
Like it or not, the government in our society has a dramatic impact on the economy through interest rates, taxes, regulations, and general sentiment. Many people think this should change – maybe it should – but, for right now, the economic problems that the census has brought to light are not set to get better unless the US government can find a way to make things happen.
Unfortunately, the political and economic ideology battles being waged in the current government mean that no action is forthcoming. The irony is that at no time is it more prudent for meaningful compromise. The macroeconomic theories by which most government actions are conceived have been forced to rapidly change to account for the incredible impact of globalization. Adam Smith and John Maynard Keynes did not write about a world in which jobs can be sent around the world in days, goods in hours, and information in seconds (although some argue Karl Marx did).
During the 1980s and 1990s, the government pursued an agenda of deregulation that was designed (so it is claimed) to help companies compete on an international playing field. Taxes generally came down in most cases. Unfortunately, we’re now reaping the consequences of a combination of unregulated markets, misunderstood financial products, credit-happy consumers, and good old-fashioned American greed. Couple that with a record-setting US debt level and you have modern day America – decades of economic prosperity that created a super-rich class and absolutely no job security for anybody else. Sure, some of that money might have trickled down, but it didn’t matter when it turned out that everyone was standing on a rug that was about to be pulled out from under them.
Depending on your political leanings, you probably already have an opinion as to why this happened, whose fault it is, and what should be done. My main point is that something needs to be done. Economists will continuously argue over what exactly needs to be done, but the market seems most worried that nothing is going to be done at all and things will be left to perpetually get worse.
It’s not a case of too many cooks in the political kitchen, but rather a bunch of spoiled, entitled, fully-entrenched pseudo-chefs that refuse to let anybody else’s recipes mesh with their own. And now, coming up on three years since the initial stimulus, which is generally regarded as a failure (even though the non-partisan Congressional Budget Office has said it created and saved as many as 3.3 million jobs), there is absolutely no economic direction from the government.
And until Democrats and Republicans begin thinking of compromise as a good thing, businesses will continue to operate in an environment that is not conducive to hiring or growth. If the government really truly was interested in helping the economy, the would build a united front that demonstrated strong, competent leadership that provides a definite road to recovery. Unfortunately, every last word in that sentence is a fantasy.
So here we are, with record poverty, an eighth wonder of the world-sized wealth gap, and no discernible leadership. European leaders are in a similar situation with Greek debt. In what one would hope is the ultimate fight or flight scenario, we’re doing neither. The government waits on the economy to move as the economy waits on the government. And until the government makes a move, we’ll be frozen in the headlights with no choice but to watch things get worse.