A pain in the pocketbook

By Katrina vanden Heuvel
Tuesday, August 3, 2010

Insecurity in America is on the rise -- and was even before the Great Recession.

The Rockefeller Foundation just released a study of economic insecurity in America, which was developed by Yale professor Jacob Hacker and measures harsh changes in circumstance: For example, it reveals how many Americans have been subjected to a staggering decline of 25 percent of "available household income," either from loss of income or sudden, unanticipated out-0f-pocket medical costs, and how many were without the savings to buffer the damage. Brutal losses such as these take six to eight years to recover from, the report said.

Economic insecurity affected 12.2 percent of Americans in 1985 and spiked to 17 percent during the 2000 downturn. In 2007, when economists were celebrating "the Great Moderation," insecurity was higher than in 1985, affecting 13.7 percent of Americans. In 2009, after the downturn, Hacker estimates that one in five Americans was hit with a 25 percent decline in available household income. And the report estimates that between 1996 and 2006 -- before the collapse -- fully 60 percent experienced such loss.

What happened? Incomes stagnated for most Americans. Medical costs rose far faster than inflation or incomes. Fewer people received pensions or health care at work. Households took on rising levels of debt to try to make ends meet. Hacker found that a majority of Americans have almost no savings to fall back on at a time of an emergency.

The Great Recession appears to be a turning -- for the worse, with trillions in retirement savings and home values obliterated. When Wall Street took us over the cliff, Presidents Bush and Obama threw everything but the kitchen sink at the economy to stanch the losses. Nearly a trillion in fiscal stimulus. Trillions in Federal Reserve support for banks here and abroad. These measures, as Alan Blinder and Mark Zandi detail in a recent paper, stopped the freefall.

But the so-called recovery has done little to reduce staggering rates of unemployment and underemployment, which are projected to continue for years. The unemployment figure -- stuck at about 9.5 percent for a year -- understates the reality. More and more workers are dropping out of the economy, not counted as unemployed because they have given up looking for work. Analyzing Bureau of Labor Statistics data, economist Charles McMillion concluded that the unemployment rate is unchanged since last June, but he said "the BLS also reports that 919,000 fewer people were employed in June 2010 than in June 2009." And, he adds, "the U.S. population also increased by 2.6 million" in the last year.

Long-term high levels of unemployment will make the insecurity revealed in the Hacker documents grow much worse. This is an economy in deep trouble.

And that is what makes the partisan debate in Washington so infuriating. Republicans believe they will benefit from obstructing everything, even the routine extension of unemployment benefits that they held up for weeks. Blue Dog Democrats have bizarrely begun to focus on deficit reduction, making it impossible even to get a vote on a serious jobs program. Now Washington is bracing for a donnybrook over the upcoming expiration of the Bush tax cuts. Democrats want to extend them for everyone making under $250,000. Republicans, straying from their reborn faith in balanced budgets at the first glimpse of a tax cut, are planning to go to the mats for extending cuts for the wealthy.

Rep. Paul Ryan (R-Wis.) describes the debate as "a dress rehearsal" for the 2012 presidential race, suggesting it reflects radically different images of American society. According to Ryan, the fundamental question would be, "Do we want to have an opportunity society with a safety net or a cradle-to-grave society with a welfare state?"

Put aside the fact that Republicans are voting en masse against a safety net -- even unemployment insurance -- for the "opportunity society," or that Democrats are a far remove from proposing a cradle-to-grave welfare state. The problem with Ryan's formulation is that it reflects an old, outmoded debate, not the reality facing us now.

What we need is a fundamentally new strategy for the United States in this global economy. We've had a bipartisan consensus on embracing the transition to an information-and-service economy -- letting manufacturing be shipped abroad, ignoring unprecedented economic inequality and unleashing financial and corporate power. The result has been stagnant incomes for most Americans, rising insecurity, a declining middle class and the prospect of chronic high unemployment. The "opportunity society" offers less and less opportunity; the "welfare state" less and less welfare.

What we need is an adult debate addressing those things vital to a successful, high-wage economy with a broad middle class. This would surely include dramatic reforms and investments of our education system, modernizing our decrepit infrastructure for the 21st century, investing in science and technology, regulating finance, doing a forced march to recapture a lead in the emerging green industrial revolution, and ending the offshoring of trade policy to global corporations.

This isn't the opportunity society of Paul Ryan and George W. Bush, nor is it the "welfare state" of Sweden. This is a common-sense plan for a more secure America.

Katrina vanden Heuvel is editor and publisher of The Nation and writes a weekly column for The Post.

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