A Change That Isn't Coming

After the midterm elections a lot of my Democrat friends were demoralized. In their estimation Obama had helped America claw her way out of the pit of the Great Recession that started with the financial sector collapse in 2007 under George W. Bush. And yet, exit polls from the midterms suggested that there remains a lot of angst about the economy in America and the President's party was punished for it.

These observations have led to a lot of head-scratching. Obama saved the US economy. So why is he being punished over the economy?

Consider, by way of illustration, this letter to the editor shared by Andrew Sullivan written by a Canadian and published in a Detroit paper:

Many of us Canadians are confused by the U.S. midterm elections. Consider, right now in America, corporate profits are at record highs, the country’s adding 200,000 jobs per month, unemployment is below 6%, U.S. gross national product growth is the best of the Organization for Economic Cooperation and Development (OECD) countries. The dollar is at its strongest levels in years, the stock market is near record highs, gasoline prices are falling, there’s no inflation, interest rates are the lowest in 30 years, U.S. oil imports are declining, U.S. oil production is rapidly increasing, the deficit is rapidly declining, and the wealthy are still making astonishing amounts of money.

America is leading the world once again and respected internationally — in sharp contrast to the Bush years. Obama brought soldiers home from Iraq and killed Osama bin Laden.

So, Americans vote for the party that got you into the mess that Obama just dug you out of? This defies reason. When you are done with Obama, could you send him our way?

America seems confused. As another example, consider how many states last week voted for Republican representation while on the same evening voting for minimum wage increases for their state!

That's just really, really weird. So what's going on?

Let's look back at the letter above from the Canadian observer. Yes, many metrics show that the economy is growing. But look at the metrics that are mentioned: Record high corporate profits, growing GDP, stock market near record highs, and low interest rates all culminating in the fact that "the wealthy are still making astonishing amounts of money."

And that's the problem. The wealthy have bounced back from the Great Recession. But the middle and lower classes?

Not so much.

Both income and wealth inequalities continue to plague America. For example, a recent study has found that wealth inequality in America is the worst it has been since the Great Depression.

Ponder that. Since the Great Depression.

From the Christian Science Monitor article summarizing the study:

Recent economic growth in the US appears to be positive and steady. The latest jobs report for October saw unemployment drop to a six-year low and the economy add 214,000 jobs. But while more people appear to be working, America's overall wealth is being concentrated in fewer and fewer hands.

According to an analysis of data sourced through 2012 – including detailed data on personal income taxes and property tax – Professors Saez and Zucman found that the richest 0.1 percent of Americans have as much of the country's wealth as the poorest 90 percent...

An even closer look at their data has shown that while the growth of the American middle class has been restricted by modest income growth and soaring debt – thanks in large part to the 2008 mortgage crisis – the super-rich have been making significant gains in income and wealth.

While the bottom 90 percent of Americans and the top 0.1 percent control about 22 percent of the country's wealth each, the top 0.01 percent of Americans now control 11.2 percent of total wealth. That share of the wealth held by the country's richest 0.01 percent – a group of roughly 16,000 families with an average net worth of $371 million – is the largest share they've had since 1916, the highest on record...

This is the problem noted above. Yes, there are metrics of increasing economic success. But that success is not being shared. It is being increasingly concentrated among the upper 1% and .1%. 

That's wealth inequality. Problems also exist when we turn to wages and income.

For example, since the 1970s wages have been increasingly divorced from productivity (the growth of the output of goods and services per hour worked). While productivity has continued to increase wages have basically flatlined:

As summarized by the EPI article regarding this graph:

This divergence of pay and productivity has meant that many workers were not benefitting from productivity growth—the economy could afford higher pay but it was not providing it. 

I think all this goes a fair way in explaining America's confused electorate.

On the one hand the economy seems to be doing well. But these successes have been largely concentrated among the very wealthy. The middle and lower classes are still struggling. Thus the paradoxical voting. Voting for a change in current leadership (i.e., for the Republicans) while voting for minimum wage increases, a policy Republicans tend to be against.

Basically, the midterms were a cry for help. A confused cry, perhaps, but a cry of help nonetheless.

And here's the sad thing about all this. The pain is only going to get worse. Neither party has good policy recommendations to address the relevant dynamics at a deep structural level.

For example, Republicans have no political resources or incentives to address wealth and income inequality. The only fiscal policy Republicans tend to bring to the table is tax reform. And taxes, we know, are close to historical lows. There isn't a whole lot to be done on that score. Regardless, "cutting taxes" for the rich or for corporations isn't going to fix the wage/productivity divergence.

And yet, Democrats don't have any good ideas either. As Josh Marshall writes at TMP:

Democrats have toyed (and I use that term advisedly) with the issue of rising inequality for the last two elections. But let me suggest that as a political matter inequality is a loser. What is driving the politics of the country to a mammoth degree is that the vast majority of people in the country no longer have a rising standard of living. And Democrats don't have a policy prescription to make that change.

Why? Because, Marshall notes, taxing the rich and voting to increase the minimum wage--the two main policy recommendations offered by Democrats--only tinker with the extremes and do not address what Marshall contends to be the root problem: the aforementioned gap between wages and productivity.

And until the two parties put forward lasting and structural fixes for these problems the pain and outrage are only going to intensify. And as the pain grows the American electorate will continue to lash out blindly and schizophrenically, alternately punishing the party in power and hoping for a change that isn't coming.