America remains a “yes, we can” kind of nation, but the aspirations of the vast middle class are under strain – enough to be the subject of a presidential task force.
President-elect Obama made it official earlier this week. Come January, a key job of Vice President Joseph Biden will be to come up with ways to boost middle-class incomes and to address related concerns about job and retirement security.
Of course, the very phrase “middle class” is a fuzzy one, and a topic perennially on the minds of politicians. But ordinary Americans are confronting a real economic squeeze.
Pay isn’t rising as fast as it used to, relative to economic growth. And over the past decade, households have stretched their debt loads to historic highs. Now an economic downturn is amplifying concerns about the security of careers, health insurance, and pensions.
In November, consumers pulled back on their spending for the fifth straight month, the Commerce Department reported Wednesday. Polls suggest widespread feelings of financial insecurity among working families – not just the direct impact of job losses – are a big reason.
“It’s an extremely important issue and a very timely one economically,” says Lane Kenworthy, a sociologist at the University of Arizona in Tucson. “The time is right for a very serious look” at middle-class challenges.
When economic challenges become widespread, the social and political fabric of a nation can be damaged, some researchers say. The reverse is also true, argues Benjamin Friedman, a Harvard University economist.
In his 2005 book “The Moral Consequences of Economic Growth,” he makes the case that a growing economy in which progress is broadly shared becomes morally and politically stronger.
The American public now appears to be on the fence about which way the country is headed. Six in 10 consumers who are cutting back say the reason is worry that things might get worse, according to a Pew Research Center poll taken earlier this month. Half that many said they had curbed spending because their financial situation actually is worse.
But can-do optimism endures. Some 68 percent of poll respondents agreed with the statement, “As Americans, we can always find ways to solve our problems and get what we want.” That number is higher than it was in 2004.
Mr. Obama announced the so-called White House Task Force on Working Families on Dec. 21. The selection of his vice president to head it suggests that Biden, known also for his foreign-policy expertise, will have a big role on domestic policy as well.
Biden said the task force would look to set policies that will improve basic benchmarks: “Is the number of these [middle-class] families growing? Are they prospering? President-elect Obama and I know the economic health of working families has eroded, and we intend to turn that around.”
The task force identified five areas for new policies:
•Expanding education and lifelong training opportunities.
•Improving work and family balance.
•Restoring labor standards, including workplace safety.
•Helping to protect family incomes.
•Protecting retirement security.
Policies on health insurance, another middle-class concern, will be crafted by Obama’s Health and Human Services secretary, Tom Daschle.
Similarly, the job-creating stimulus plan – expected to involve massive government spending – isn’t being crafted by this task force.
“The task force has a different target. It’s less about job quantity than job quality,” says Jared Bernstein, an Obama-Biden adviser who will be on the task force, in an e-mail interview. “Its goal is to make sure that once the economy begins to expand again, middle-class families will reap their fair share of the growth, something that hasn’t happened in recent years.”
Obama has called for middle-class tax cuts and for higher tax rates on Americans making more than $200,000 a year – those whose incomes have been rising the fastest in recent years.
It’s not that middle-class incomes have stopped growing. Overall compensation per hour of work, including benefits, has continued to rise generally in recent decades. But from the 1970s on, “median incomes have lagged way behind economic growth,” says Mr. Kenworthy.
Researchers cite several reasons for the pay trend and the climate of insecurity.
The declining clout of labor unions and a minimum wage that hasn’t kept pace with inflation are two examples on the domestic front. Then there’s the fact that consumers have borrowed more than ever before – with much of a 40-year rise in household debt occurring just in the current decade. The recent housing and stock market downturns have eroded family assets relative to debt.
Pay is now based more on performance – and more income seems to be flowing to “superstars” like top celebrities or CEOs.
The opening up of the global economy – not just trade in goods but also immigration and communications-based outsourcing – has also played a big role.
Government policies can help on some fronts, but in other ways workers and firms will bear the burden of adjusting to this new era.
“Tell me: How are you going to bring back the premium [pay] that was geographically insulated?” he asks. “You cannot turn back the clock.”
That may be why education is listed first in the task force’s to-do list. The future of the middle class depends a lot on raising skill levels and nurturing the creation of high-skilled jobs.