The Wrongologist

In
case you hadn’t noticed, GDP is at an all-time high, well above pre-recession levels, corporate
profits are at an all-time high and the stock market has come back to
near its high point in 2008. So is our Deficit.

In
the past, that would have been enough to move us toward acceptable employment
levels but this time, we have an enormous number
of unemployed, or functionally unemployed, about 15 million people. Check out
this graph:

We need to cut the rate of unemployment
about in half
to approach the country’s prior average levels of unemployment. And we need to
do this when profits are great, the stock market is good, and GDP is at an all time high.

So, where will the jobs come from?

Is this as good as we can expect? Are we
condemning a generation to residing in the lower economic class? Pew Research has just published
a study
about the growth in Americans who self-identify as members of the lower-middle
or lower class.

The headline is that the percentage who identify
as lower-middle or lower class has risen
from a quarter of the adult population to about a third in the past four years.
Pew surveyed 2,508 adults.

Pew
reports that not only has the lower class grown, but its demographic profile
also has shifted:

• A
  virtually identical share of blacks (33%) and whites (31%) now say they are in
  the lower class.

• The
  share of Hispanics who place themselves in the lower classes grew by a third.
  

• The percentage of blacks who say they are in the lower classes is unchanged from 4 years ago, while the percentage of whites grew by 35%.

As
those surveyed look to the future and that of their children, many in the lower
class see their prospects getting worse. From the report:

• About
  three-quarters (77%) say it’s harder now to get ahead than it was 10 years ago.
  

• Only
  half (51%) say that hard work brings success, a view expressed by overwhelming
  majorities of those in the middle (67%) and upper classes (71%).

While the
expectation that each new generation will surpass their parents is a central
tenet of the American Dream, those lower classes are significantly more likely
than middle or upper-class adults to believe their children will have a worse
standard of living than they do.

Downward mobility has political
consequences:
Although it is not clear whether any of Pew’s findings are based on perceptions
created at the political conventions, only
8% identified the Republican party as favoring the poor more than Democrats.This is even more surprising since the
survey shows that more Republicans and Conservatives say they are
in the lower class than said so in 2008. From the Survey:

• Nearly twice the proportion of Republicans now places themselves in the lower class than did so four years ago (23% vs. 13%).
  

• The share of political independents who say they are in the lower classes also increased to 37%, a 10 percentage point increase over 2008.

• About a third of all Democrats say they are lower class (33%), compared with 29% four years ago, a change that is not statistically significant.
  

Here’s the big problem: Based on current unemployment levels in what are otherwise
relatively good times, and based on the statistics presented here and here; and the in the Pew Survey above, the middle class is shrinking
in absolute terms while those who self-identify as lower class is growing
rapidly.  

Consumer spending is 70 percent of the
nation’s economic activity.
The way we add jobs is INCREASED CONSUMER DEMAND. That means getting more
American consumers spending again. Most
new spending comes from the middle class and those aspiring to join the
middle class. They are the true job creators. Adding to the lower class is not
helpful.

But, consumers can’t spend when they
are unemployed or working part time, when their wages are shrinking, their savings are
depleted, their homes are worth a fraction of what they were five years ago,
and they’re worried about keeping their jobs.

This is the heart of our economic
dilemma, 15 million people are having difficulty making ends meet because they
are not working, or they have less of a job than they want.

Neither
party, nor their presidential candidate has addressed the question. They prefer
arm waving about middle class jobs.

The question at the
core of the upcoming presidential election isn’t merely which candidate’s story
most voters believe, the debate should be:  What needs
to be done starting in January to add more jobs in this economy?  

Romney has the usual Republican
arguments: Cut taxes on corporations and the already rich, cut government
spending (mainly on the lower-middle class and the poor), and eliminate costly
government regulations.

But corporations won’t hire more
workers simply because their tax bill is lower and they could spend less on
regulatory compliance.
Most companies are simply sitting on the profits they’re already making. They
are waiting for DEMAND to
improve.

In Part II,
we will talk about what steps we might take that will lead to more jobs and
more demand.