The Great Divide

I think the American Dream for most people is just survival.
Sandy Scholl


According to a study conducted for the Rockefeller Foundation more Americans are financially insecure now than they have been in a quarter of a century.  Financially insecure is when two circumstances prevail. First, within a year’s time a person experiences a major loss in income (25% or more) resulting from job loss or large out-of-pocket medical expenses (or both). Second, that person doesn’t have enough money saved up to replace those losses. This condition now afflicts 1 in 5 families. Well, perhaps that’s to be expected given that so many people lost their jobs during the Great Recession.  But then why, with a recovery (admittedly a tepid recovery) underway, do the trend lines suggest a continuing worsening in this regard?

An article in the Wall Street Journal’s Blog Real Time Economics titled GDP Signals Companies More Optimistic Than Consumers sums it up nicely in the title alone.  And an editorial in the NY Times explains just why companies are more optimistic.

 The recession officially started in December 2007. From the fourth quarter of 2007 to the fourth quarter of 2009, real aggregate output in the U.S., as measured by the gross domestic product, fell by about 2.5 percent. But employers cut their payrolls by 6 percent.

In many cases, bosses told panicked workers who were still on the job that they had to take pay cuts or cuts in hours, or both. And raises were out of the question. The staggering job losses and stagnant wages are central reasons why any real recovery has been so difficult.

“They threw out far more workers and hours than they lost output,” said Professor Sum. “Here’s what happened: At the end of the fourth quarter in 2008, you see corporate profits begin to really take off, and they grow by the time you get to the first quarter of 2010 by $572 billion. And over that same time period, wage and salary payments go down by $122 billion.”

Executives are delighted with this ill-gotten bonanza. Charles D. McLane Jr. is the chief financial officer of Alcoa, which recently experienced a turnaround in profits and a 22 percent increase in revenue. As The Times reported this week, Mr. McLane assured investors that his company was in no hurry to bring back 37,000 workers who were let go since 2008. The plan is to minimize rehires wherever possible, he said, adding, “We’re not only holding head-count levels, but are also driving restructuring this quarter that will result in further reductions.”

Citing a recent article from Bloomberg BusinessWeek, Professor Sum noted that in July cash at the nation’s nonfinancial corporations stood at $1.84 trillion, a 27 percent increase over early 2007. Moody’s has pointed out that as a percent of total company assets, cash has reached a level not seen in the past half-century.

I read the editorial first and then followed the link back to the original article – Industries Find Surging Profits in Deeper Cuts – the Times had published.  It was an eye opening read and I suggest everyone who has blithely said, or thought, that the unemployed should just go get a job read it.  I find it alarming that companies are on this track and believe it will contribute to an increasing divide between the haves and have nots in the American population. 

Unfortunately I believe a segment of our government is also actively contributing to this divide. Recently some members of the congress and senate fought against extending the unemployment benefits on the grounds that doing so increases the deficit.  True – the recent bill to extend unemployment added $34 billion to the deficit, and in doing so enabled millions of out of work Americans to pay their mortgage or rent, and put food on the table.  I will wager that nearly 100 percent of an unemployed person’s benefit check goes right back into the economy without delay – I know mine does. 

Now the same members of our government (more or less) are protesting the idea of letting the tax cuts for the wealthiest (2% of taxpayers) expire and revert to earlier (higher) levels even though keeping the cuts in place could cost us as much as $40 billion. I guess it’s more important that those Americans making over $250,000 a year keep their tax cuts than unemployed people get a benefit check for $350 a week (average check).  These senators argue that the tax cuts for the wealthy ‘pay for themselves’.  Apparently the reasoning is if we don’t extend the tax cuts the rich won’t have any money to spend and the economic recovery will falter! Or perhaps, as some members of the Senate seem to believe, the rich are going to create jobs with those tax cut dollars.

Taking the misleading line that the long-awaited expiration of the partial tax holiday enjoyed by the top 2% of households amounts to an intolerable new tax hike, Utah’s Sen. Orrin Hatch lashes out at expiration as a “job killer.” Religion Dispatches

Anyone following economic news will have seen articles like the one in ComScore that report the wealthy cut spending and held onto their money during the recession (during which they were beneficiaries of the tax cuts).  Does anyone think they are going to let loose now that there’s a bit of a recovery?  I suspect the rich, like the corporations, and unlike the majority of Americans, will be perfectly happy to continue sit on their pile of cash.

But if the tax cuts are allowed to expire (speaking now of just the cuts that affect the wealthiest people in America – the top 2 percent of taxpayers) an additional $40 billion in tax dollars will be generated.  Dollars that can pay down the deficit and bolster the economy in ways other than buying new Jaguars or taking expensive vacations!

An op ed piece in the Miami Herald said it well:

More than 40 U.S. senators have voted several times this year to block extensions of programs that — according to mainstream economists — are the most effective ways to boost consumer demand and create jobs. This minority of senators filibustered a package of extended unemployment benefits, Medicaid funding for states and other vital measures because it would have increased the budget deficit by more than $100 billion, which these senators claimed was unacceptable. They later stopped action on several smaller jobs bills until the Senate (just barely) approved a pared-down $34 billion extension of unemployment benefits.

 Yet almost all of these supposedly anti-deficit senators also want to add about a trillion dollars to the deficit over the next decade by making permanent the Bush tax cuts that benefit the very richest taxpayers. While the relatively small, temporary job measures that these senators blocked would have little or no impact on the long-term budget deficit, making permanent the Bush tax cuts for the rich would drastically increase the deficit and reduce our ability to invest in America’s future.

I am deeply troubled by this trend.  I fear that it will lead to a deeper divide that will create lasting social issues and a level of classism I thought was in America’s past.  I’m particularly bothered that the same Senators who want to keep the Bush tax breaks for the wealthiest Americans are eager to let expire the parts of the tax breaks that modestly expanded the Child Tax Credit and the Earned Income Tax Credit –tax breaks that benefit the poorest three-fifths of taxpayers and that President Obama would like to make permanent. 

Have we really become so selfish a nation?  Can anyone think this path is in our best interest and the best interest of the generation to follow?  What will we end up with?  An upper class of the wealthy, stockholders and CEOs and subclasses of workers who are browbeaten into taking wage cuts rather than lose their jobs (as the Harley-Davidson company told workers in Milwaukee), subsistence wage earners and perpetually unemployed?  Is this YOUR American Dream?

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4 Responses to The Great Divide

  1. Hi! I started reading your blog when Landismom linked to you awhile back. I think it’s time to say hi, or else risk seeming like a stalker!

    Regarding tax cuts: Dude, my taxes are so high! Between property taxes going up and state taxes going up and federal taxes going up — well, I haven’t calculated it, but at least 35% of my family’s income is paid in taxes, and probably more. I just find it so hard to believe that everyone gives nearly 1/2 their income to the gov’t (and rich people do give a higher % of their income than the rest of us) & yet the gov’t is broke. What costs so much?? The problem, as I see it, is not the total amt of money gathered by the gov’t but the *allocation* of that money.

  2. valerie says:

    wow. i knew this was going on (debate about the Bush tax cuts), but they way that you brought all the pieces together was really well done. i feel astounded that someone as well spoken/ written and as intelligent as you cannot find a good job! best of luck.

    • boxcarkids says:

      Gee- thanks! Maybe I’m looking in the wrong field. I have to say I didn’t get to use creative writing and critical thinking all that much in my old job!

  3. dP says:

    “Have we really become so selfish a nation?”

    Unfortunately, I think yes we have.

    When government, corporations and local leadership all operate only in their own self-interest without regard for those they serve or employ it’s inevitable that the behavior continues to trickle downward. Scary.

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