Tuesday, September 13, 2011

Attacks on the New Deal Continue as Current Middle Class Vanishes

It is absolutely mind-boggling that as the last of the Middle Class appears to be cratering and crashing in this country (see accompanying charts), ever more vicious and histrionic attacks are being launched against the New Deal and its benefits. Of course, the most radical of these jeremiads has been compliments of Rick Perry, against Social Security, and I already dealt with in an earlier blog:


But more on these anti-New Deal shibboleths later. The news in yesterday's Wall Street Journal (p. A1, charts etc. on p. A16) is that the continued evaporation of the net wealth of the Middle Class (those deemed to earn in the range from $50,000- $140,000) has meant marketers can no longer assume this economic niche can purchase the wares that in the past they had taken for granted. (Their sales projections and inventories have been consistently off the past three yrs.) For example, now many middle class consumers are down shifting from purchasing "Tide" to "Gain" Laundry detergent. Ditto across a wide range of products, from paper towels (Bounty Basic instead of regular Bounty), to toilet paper (Kirkland basic two-ply brand instead of 'Charmin') to toothpaste ('Pepsodent' or Baking Soda, instead of Crest).

The marketers for the companies, whose shares have taken big hits, have become so profoundly worried that they 're now devising a marketing "hourglass" based upon a "consumer hourglass theory" by which the top section appeals to the desires and tastes of the wealthy clientele (such as one prosperous matron quoted in the WSJ article who insisted "budget" is a "dirty word" to her, and "if Gain is so cheap, it can't be very good as a detergent" - in response to a marketer's query if she'd ever consider buying it). Meanwhile, bolstering this theory, we read the net worth of middle class households has fallen by 26.2% in the past three years.

Then there is the most objective measure of national inequality, called the "Gini index" or "Gini coefficient". This ranges from zero (when we have perfect equality or everyone earns the same amount) to 1, when all income goes only to one person. Ginis in the 0.4- 0.5 range typically disclose 90% of earnings or wealth are being controlled by 5% of the populace, with 10% for the other 95%. This is a structure more typical of Banana Republics where one fixed ruling class cops all the spoils or proceeds from oil refining etc., and everyone else gets the dregs.

In 2009, the most recent year for which calculations were available, the Gini coefficient for the U.S. stood at 0.468, or a 20% increase in income-earning disparity from 40 years ago, according to the U.S. Census Bureau (see chart). According to one marketer from P&G quoted in the article:

"We now have a Gini index similar to the Phillippines and Mexico - you'd never have imagined that!. I don't think we've typically thought about America as a country with big income gaps to this extent".

Yes, sure....but why express surprise? Why do that when destructive tax policies have been enacted over the past 30 years, while we've also nearly tripled our military spending as a % of GDP, and barged into more nations where we don't belong ...and at least in one (Iraq) under false pretenses which will end up costing us over $3 trillion when the final bill is tallied.

Let's also be clear that it wasn't just one political party responsible for this debacle of sending us hurtling towards Third World-nationhood. (Which we will have when the last remnants of the middle class vanish). While it was certainly the GOP that first proposed and pushed the most massive tax cuts in history (back in 1981 under Reagan, from 70% down to 28%) it was the DEMS who went along with it and voted the goddamned cuts in! In other words, they enabled this whole misshapen dynamic, just as they did again in 2001 with Bush's $1.7 TRILLION tax cuts - which ought to have been shot dead on arrival in the (Dem-controlled) Senate. But what happened? TWELVE Judas Priest Dem traitors, with more concern for their re-election than the nation's welfare, voted them in!

They added insult to injury when Bush demanded action for the costly and massive Iraq invasion under the auspices of the Iraqi War Resolution in 2002. Instead of standing on principle, most of these pusillanimous Dem pricks collapsed like weasels (no doubt fearful of being tagged "unpatriotic" by Cheney and Rove) and voted for it, as well as its fearsome economic costs which still plage us today.

No surprise then, that as ABC reported last night, the costs from the two "wars" alone have added $6 trillion to the deficits. Add in Bush's tax cuts (still being extended by the stupid Dems) and you have more than $9 billion added up that could have been used for creating jobs in this country, repairing the crumbling infrastructure and getting our collective national mojo back. But sadly, it seems evident we no longer have political parties invested in this, all they want is corporate coppers and $$$ to keep their campaign boxes flush. Then they have the absolute nerve to also ask ordinary citizens for handouts when they haven't shown themselves capable of doing anything for the common good.

It is also clear that both parties have now taken the tax cut kool aid, when back in Reagan's era it was confined to the Laffer curve morons and supply side idiots. Now, it appears to have become a central policy. When we expected the Bush tax cuts would finally expire for ALL, back in December, we were than nonplussed to see the Dems use them as a political football, vowing to extend them only for the middle class, but not the rich - which paved the way for the repukes to use their tea party guerilla warfare and get the Ds to cave on both fronts.

The point is that the middle class just didn't all of a sudden arrive at its precipice from some spontaneous event or an interphasing with a parallel universe. No, our own leaders helped to dig the grave of the middle class via their gratuitous greed for more money, more lobby perks and more corporate campaign largesse. Thus, the tax cuts they continue to enact aren't for any middle class benefits (since they have to know taking these cuts now will force benefits cuts later) but rather to pad the wallets of the rich so they can increase their expense accounts at Nieman Marcus and Tiffany's. (In the WSJ article, a Tiffany spokesman sniffs that their 'lowest priced baubles' - once a sop to the middle class so they could imagine a piece of the rich man's pie, "are now its weakest sellers in the U.S.". Well, uh duh! Righto, because if you ain't born with a silver spoon in your mouth, as 95% of the wealthy are - according to Michael Parenti in 'Dirty Truths'- you can't even afford to play at being rich!)

Despite this descent and the emergence of possibly disastrous austerity budgets (aimed at not only cutting Medicare, but Social Security - from what I've read) the last vestiges of the middle class stand to be eviscerated within a few years. And helping this process along will be those pundits of the press and media who continue to attack the New Deal.

A typical example appeared in a book review in today's WSJ by Amity Shlaes, with whom I had run ins before, when she wrote for The Financial Times. I recall consistently sending out harsh e-mails to the FT editors telling them that their esteemed publication merited better than to have a hack like Shlaes fulminating her unsupported libertarian dreck week after week. Don't know if it was coincidence, but after about my 5th email Shlaes was no longer to be seen.

Anyway, in her review of Michael Hiltzik's new book 'The New Deal', Shlaes gets about everything wrong as usual. In other areas, so typical of propagandists (say Gerald Posner in his 'Case Closed' on the JFK assassination) she plays fast and loose with facts, or doesn't balance them all out properly, as an objective reporter would. For instance, she complains:

"Notwithstanding the billions of dollars spent and the thousands of regulations enacted, the economy did not get back to its 1929 level in Roosevelt's first two terms"

But she doesn't take the next step to explain objectively why this didn't occur! (Which is a typical tactic of most anti-stimulus-spending wingnuts and libbies). In a way her efforts resemble those of Intertel's Kort Patterson, who in one of his "Port of Call" issues (March, 2009), attempted to disparage FDR as being the culprit who “prolonged” the Great Depression, totally oblivious to the fact that the Federal Reserve’s then deflationary interest rate policy was at the crux. I referred him (as I do Shlaes now) to Chris Farrell’s excellent monograph: ‘Deflation’, page 103, the Chapter, ‘The Great Depression’.

In addition, FDR made another critical error, which was to listen to deficit and budget hawks and apply spending cutbacks prematurely, in 1937. This added to the Fed's belt tightening spelled disaster ...or rather prolonged economic pain - which is why "unemployment only occasionally moved into single digits" (according to Shlaes, though 9% is still terrific given it started at 25%!)

In terms of history repeating, many economists - including Paul Krugman, and Joseph Stiglitz- believe there is a parallel between FDR's premature spending cutback and Obama's concessions to do so again - tapping more deficit-driven spending cuts, instead of the higher spending needed to fuel higher aggregate demand and more jobs. Thus, we may see a re-enactment of what we saw with FDR because well, evidently humans don't learn from the past so they keep repeating its mistakes!

Shlaes other complaint that "the DOW Jones Industrial Average did not return to its pre-Crash level" is easily explained. Bear in mind the 1929 stock landscape was literally contaminated with toxic waste and "land mines" that had to first be cleared away to render the market safe for people to partake of again. At the top of the list, there had to be regulations preventing one subset of investors getting heads ups on stocks before others, and profiting from their losses. Then there were the horrific "investment trusts" (analogous to today's mutual funds) which promised ordinary Joes and Janes a stake in the market. However, they were laden with toxic devices and very few profited. They were also one of the main engines driving the crash of 1929 as by then so many had been lured by Maul Street's snake oil salesmen into buying into the damned things. Finally, there was the need to eliminate the nexus between regular commercial banks and investment banks, accomplished via the Glass-Steagall law in 1933.

Contrary to Shlaes' offhand claim (at the end of her sorry piece), that Hiltzik in his book refused to "acknowledge the many ways in which the New Deal failed the economy it was trying to save", the New Deal in fact saved capitalism in the end. Had the FDR incentives like the WPA and Social Security etc. not been passed, as well as other regs like Glass-Steagall, there is no doubt in many people's minds that the whole enchilada would've been burned to the ground - Wall Street and all- by the millions with grievances wielding their "pitchforks and torches".

Such is the danger when inequality grows to cancerous proportions, and FDR knew it. A pity that Amity Shlaes and the current deficit cutting Repukes don't.

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