The Elephant In The Room

Why the Deficit, the Debt Ceiling and the Fiscal Cliff are Just Elaborate Distractions

If you are like me you are growing increasingly frustrated with our ongoing national distraction from the core issue facing our nation. In the midst of the Great Recession, which some economists are finally acknowledging is in many ways a depression, we find ourselves in a 3 year GOP inspired series of purposeful crises. How we can be focused on taxes, the deficit, and the debt ceiling in the face of such great need for job creation is virtually impossible for me to fathom.

You may recall during the first presidential debate that the candidates had a conversation about jobs, or rather taxes. When asked about jobs, Mitt Romney talked about taxes and regrettably so too did President Obama, as if tax policy equates to job creation. As noted here previously, if tax cuts equal job creation then we are living in the Republican Jobtopia, for we have been steadily cutting taxes for over 50 years.

After the election we launched headlong not into a plan to quicken the economic recovery and stimulate job growth, but rather the latest GOP conjured crisis, the fiscal cliff. Yet again we found ourselves being led down the wrong road by conservative voices, and President Obama and many of his democratic supporters went right down that road with them. In spite of the fact that austerity has been shown in Europe to be the wrong course, we found ourselves in a two month long debate about how and what austerity measures we would put in place. It was argued our social safety net would have to be sacrificed in order to prolong the deficit exploding tax cuts for the wealthy. Jobs, in fact the discussion of jobs would have to wait.

Unable to do more than waste our national time on the austerity debate, our leaders hit the pause button on the fiscal cliff and kicked it down the road so that we might have yet another prolonged distraction over the fiscal cliff. This time we get the additional excitement of the impending debt ceiling, yet another fabricated crisis of the GOP's making.

Last week during the President's State of the Union speech the GOP yet again demonstrated it’s contempt for economic recovery when it failed to support President Obama's call for an increase in the minimum wage. Here we have the key to our recovery, or at least the beginnings of the key. It's not just jobs that matter, but even more so, wages. The elephant in the room that we have been nationally ignoring is the overall decline of our collective incomes and along with them the middle class. We don't need austerity. We don't need fabricated crises. We need jobs, and more than that, we need our wages to begin to rise again.

Some of you may be thinking that we have very serious people on both sides of the aisle who say that we must focus on the deficit. How could it be argued that wages should be the core of our national discussion?

The serious people who seek to engage in talks about the deficit while ignoring economic recovery make sophisticated sounding arguments. They make impassioned pleas. They speak of future generations and morality. Yet it's so simple to see that they are wrong. In fact, taxes and the deficit are symptoms of the core issue, American wages.

Simply put, here is why wages are the key problem:

The American Economy Is Driven By Consumers
American consumers drive the American economy. In fact consumption, depending on the year, is typically around 65-70% of our economy. It has been seen to spike as high as 81.3% or our economy.

Middle Class Wages Have Been Flat For Decades
American wages have been flat for almost 40 years. You read that correctly. For almost four decades, the bottom 90% of Americans have experienced few real increase in their wages.

Income Gains Since 1971

Tax Cuts and Deregulation Have Failed To Drive The Economy
Over this time rather than focus on the economic engine that drives America, the American wage earning consumer, we have instead been engaged in a fools errand of tax cuts and deregulation. The result of these policies being the concentration of wealth and power in the hands of the few. The fact that wages for the overwhelming majority of Americans have stagnated even while we have received tax cut after tax cut and consistently deregulated industry after industry demonstrates how ineffective these policies have been.

Historical Tax Rates Chart

How bad have these policies been? How distracting has the decades long debate about the debt and the deficit been? In a recent study, Economist Emmanual Saez notes that the income gains realized during our recovery from the great recession went entirely into the hands of the top 1%. In fact, the rest of us actually saw our incomes decline. As a result, the top 1%, according to Saez, realized 121% of the income gains since 2009.

So let's reflect on these three points. First, our economy is driven by consumption. Second, American consumers have seen there incomes, their ability to consume, flatten for four decades, and since the great recession, incomes have declined. Meanwhile, over that same time period we have been engaged in an unending conversation about the need to cut taxes and deregulate industry.

We now have decades of evidence to prove that these policies have failed. We know the central role of the American consumer in our economy. We know that 90% of Americans have not seen their ability to consume meaningfully increase in four decades. The question becomes why in this great recession are we discussing anything other than jobs? Not just jobs, but good paying jobs, jobs where American wages can begin rising again.

An economy driven by consumption where 90% of the consumers grow weaker with each passing year is an economy destined to slow. This is the 800lb gorilla, or rather the elephant in the room that not enough of us are talking about.

We often hear our conservative friends talk about growing the base as a means of collecting more tax revenue. Yet we never hear them argue for increasing our wages, which would in fact grow the base, no tax increases required. And in the President's State of the Union we saw them openly oppose increasing the wages at the bottom, what hope do we have then of increasing the wages in the middle?

It's easy to be swept away by discussions about tax cuts. After decades of wage stagnation we are all feeling the pinch. We all could use more money in our paychecks, but the money the GOP offers us in tax cuts is pennies to the dollar on the wages that we rightfully should be receiving if our wages were keeping pace with the gains seen at the top.

Austerity, Safety Net cuts, taxes, the deficit, deregulation, these and so many other issues at the center of our national debate are purposeful distractions. The elephant is in the room. It's very easy to see. It's time we start doing something about it before it so tramples our economy that we may never be able to realize our increasingly dormant national potential.

This isn't a call for class warfare. In fact it's pretty easy to make the case that ending a system where the top 1% receive 121% of the gains would be the end of class warfare rather than the beginning.

If we are to have a conversation about budget cuts and our social safety net, let that conversation be about how much the middle class has already given. Let us reflect on how much the middle class has sacrificed in recent decades. Why if we have not received the benefits of these failed policies should we be forced to pay for their failure with cuts to Social Security, Medicare, Medicaid, education and more?

We Grew Together

As Paul Krugman says, "let's end this depression now." It is possible for ALL of us, the 99% and the 1% to benefit from our political and economic system, in fact we have done it before. The question is why would we talk about anything else?

Reader Comments


  1. By Dennis Brown at Jamie, your incisive article once again shows us just how much we still have to do regarding study and immediate action on the economy and jobs. We need to build a team of activist so we can solve these problems before they completely overwhelm us. Let's converse and also plan to take action soon. Thanks for your consistently fine writing and the clarity of intellectual process which impels your reaching out in behalf of the 99% and into the political realm. You have elevated the discussion; people like you should be in the halls of Congress leading the nation on these issues.

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