The Tribune Democrat, Johnstown, PA

November 11, 2012

William Lloyd | What it will take to rebuild the middle class

William Lloyd

— Virtually every candidate in last week’s election vowed to rebuild the middle class.

Keeping that promise is likely to require more government than many voters say they want.

If the winning candidates can lower the unemployment rate, the average household income will go up and the number of food stamp recipients will go down. Unfortunately, that will not be enough to cure the income inequality that has undermined the middle class since long before the “great recession.”

The rise of the middle class was largely a result of U.S. dominance in basic industries after World War II. It was inevitable that our share of world production would decline after the war, as our competitors rebuilt factories that had been bombed.

It was also inevitable that technological changes would reduce the necessary number of factory workers. However, CEOs and big investors made the problem worse by moving factory jobs overseas in order to take advantage of lower wages and weaker environmental and workplace safety rules.

Admittedly, there are positive aspects to globalization.

Some sectors of the U.S. economy (especially agriculture) enjoy a sizable trade surplus. Cheap foreign labor helps keep our consumer prices lower than they otherwise would be. Countries are less likely to take military action against us if their economies are closely linked to ours.

However, to achieve these benefits for the country as a whole, too many U.S. factory workers lost their jobs or had to give back part of their wages, health insurance or pensions.

Several reports by the Economic Policy Institute document the problem. During the three decades following World War II, the hourly wages of American workers increased by almost the same percentage as their output per hour increased.

In other words, workers, management and investors shared the increased profits equitably when businesses became more productive.

However, since 1973, output per hour has grown more than twice as fast as the hourly wages of American workers.

That means that, since 1973, a disproportionate share of the profits from improved workplace efficiency has gone to the managers and the investors. As a result, the gap between management and workers has increased dramatically.

In 1965, the average CEO earned 18 times as much as the typical worker. By 2011, the average CEO earned more than 200 times as much as the typical worker.

Many of the winning candidates promised a tougher stance on trade with China as a way to bring back high-paying factory jobs. However, there will be other low-wage countries eager to take China’s place.

Furthermore, even if the promised reduction in corporate taxes succeeds in making the United States more attractive to manufacturers, robotics and other technological changes will limit the number of new jobs created.

In short, it is unlikely that keeping the promises made in the recent campaign will substantially increase the pay of most workers in the foreseeable future.

Therefore, like it or not, the economic well-being of working families will be dependent on government.

For example, because most workers do not have pensions that provide guaranteed benefits, Social Security and Medicare will be at least as important to a dignified retirement for today’s workers as those programs have been for current seniors.

Similarly, whether it is achieved through Obamacare or through some compromise with Republicans, universal health insurance will be necessary in order to prevent middle class households from falling into poverty when a family member has a heart attack, is diagnosed with cancer or suffers a disabling injury.

Republicans complained during the campaign that more than 40 percent of Americans are shirkers because they do not pay any federal income tax. Contrary to the Republican criticism, many of those people are working and are paying Social Security and Medicare taxes to help finance their future benefits.

However, because their household income is not enough to support their families, they qualify for the earned income tax credit and are forgiven from paying the income tax they would otherwise owe.

Unfortunately, despite insisting on continuing the Bush tax cuts for the wealthy, congressional Republicans have proposed to allow the earned income tax credit for working families to expire.

We must get the deficit under control.

The post-election debate will be over which government spending to cut and whose taxes to increase. 

If they are serious about restoring the middle class, the winning candidates must find a way to cut the deficit while protecting Social Security, Medicare, universal health insurance, and tax breaks that benefit average workers. 

           

William Lloyd of Somerset represented Somerset County in the state House of Representatives (1981-1998) and served as the state’s small business advocate (November 2003-October 2011). He writes a monthly column for The Tribune-Democrat.

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