by Nomi Prins
- USA -
As the middle and poorer classes get crushed under a mounting pile of debt, and living costs grow faster than wages, we’re becoming a country of two classes: the top 1% and everyone else. Similarly, we are two economies. The national one is comprised of items like GDP (Gross Domestic Product), corporate profits, stock market performance and CNBC. Then, there’s the other one in which most people live: stretching to afford health care, a mortgage, commuting costs, education, kids, parents, and the credit cards that act as temporary pain killers.
The rhetoric surrounding George W. Bush’s economic stimulus package, as boastfully “bi-partisan” as it is (we are, after all, in an election year), indicates a complete lack of comprehension of the difference between this ‘national’ economy and the ‘people’s’ economy, and the extent of the gap between the two.
The national economy, as measured by large scale figures simply does not represent individual citizens’ economic circumstances. That’s why debate over whether we are in a recession or not misses the point of everyday financial realities for most of the population. According to the standard definition of recession (two quarters or more of a decline in GDP), we’re not there. In which case, Bush and Paulson are technically right in saying the economy is simply ‘slow’.
But, that’s been far from the case if we consider the people’s economy (the people - as in all the American citizens who don’t fall into that upper percent of the nation’s wealth bracket). And very little in the President’s, or in most of the presidential candidates’ plans, will change this.
The highest bidder mentality of Wall Street and its elite private equity groups has exacerbated the sub prime and regular housing market crisis. As investment banks stuffed loans into packages of toxic speculative waste, actual people lost their homes, hurt further by media attention on those declining home values, which didn’t thrill new buyers.
In the process of trying to keep up escalating payments on their homes and home equity loans (backed by falling home values), people increased their credit card balances, suffering requisite late fees and higher rates, and ravaging 401K plans in desperation, during a time in which the values of those plans shrunk along with the falling stock market.
Don’t get me wrong. No one would scoff at an $800 tax rebate check in the mail, but at best, it may provide a month of relief. Meanwhile, it does nothing strategically to fix the barrage of corporate gouging that continues unabated and unregulated by the Washington powers that be (including those running for office). Seriously, wouldn’t it kill you if your health insurance premium rose just as you were about to cash that government rebate?Home prices fell by a record 6.7% over the year and with legions of unsold homes on the market, they won’t be rising any time soon. The largest mortgage lenders are trying to sell themselves to the banks that once funded them. And banks keep writing down loan values on their books faster than you can say “class action lawsuit.” Credit card companies are starting to see the late payment and defaults that happen when people have maxed out their cards to pay their rising mortgages.
Unemployment has jumped to 5%, or 2001 ‘recession’ levels. And, if more firms fire more employees to ‘cut expenses’, that number will rise. This means people will buy less, which will hurt corporations, who will then fire more people.
We can debate forever whether the average $300 tax rebate in 2001 that the administration claims stimulated the economy did or not. (We can debate whether a similar rebate will or will not this time around.)
But whatever it achieved for the national corporate economy, it did not halt the rise in basic living expenses, health care costs or tuition. More than one out of five middle-class families have less than $100 per week remaining after paying for basic living expenses. In nearly one out of four middle-class families, at least one family member lacks health insurance. And almost one in three families doesn’t have more than a high-school education.
It did not put a leash on credit card companies. American credit card debt has tripled in the past two decades, with African American and Latino households carrying a higher percentage of debt than White ones. Americans over 65, targeted by predatory credit card companies, experienced the greatest increase in debt carried. Meanwhile, industry deregulation means there are no rate or fee caps. Credit card issuers raked in $8 billion of fees between 2004 and 2005. To cope with the rising credit card debt, Americans raided the equity in their homes, whose values seemed to be only rising – until they stopped. From 2001 to 2006, homeowners cashed out $1.2 trillion in equity. Those loans will need to be repaid.
It did not halt the increase in the wealth gap. Over the past two decades, wealth in the top 2% of the country has doubled; in the bottom quarter, it has declined.
It did not halt the fraud or questionable lending practices of the housing market players. The list of investigations has just begun.
It did not halt the decrease in average American wages per hour.
It did not halt the unemployment gap between white and black Americans. In general, the black unemployment rate is twice that of whites, more in recessionary times. The black prison rate also rises with the unemployment gap.
It did not halt the life expectancy gap. The rich live longer than the poor by 6 years.
It did not halt the deletion of employee retirement plans. Only one out of five private sector workers has a traditional pension. It did not replenish the Social Security system. None of the candidates has addressed pensions or social security in any meaningful way – saying ‘we’ll fix it’ is not meaningful.
Bush acknowledged that “continued instability in the housing and financial markets could cause additional harm to our overall economy.” However this is a convenient excuse to push his last economic hurrah - making his tax cuts permanent. The president behind the biggest corporate tax breaks in two decades also wants to “bolster business investment and consumer spending.” That doesn’t mean he cares about the average person’s quality of life.
But, we don’t expect more from him. From the ‘candidates of change’ however, we should demand more meaningful policy that truly enriches the main street economy.
Cap credit card rates and fees, and make credit card companies offer repayment schemes at lower rates that aren’t designed to further screw borrowers. Remove prepayment penalties for primary homebuyers and make banks proactively extend offers on loans with reduced interest rates (now at 2005 levels).
(Note to my bank: how come you’re not passing on the love from today’s 75 basis point rate cut to my mortgage rate?)
Get rid of insurance companies as an impediment to affordable health care. Either shift the burden of retirement risk back to the corporations that get the tax breaks, or don’t give them tax breaks. Increase the education budget dramatically, so that more minorities, working poor and middle class can get advanced degrees. Tax private equity titans at the same levels as regular citizens.
Place the focus back on the majority of the population: increase collective wealth and not the wealth gap, and GDP will follow - on a more stable, long term platform.
About the Author
Nomi Prins is a journalist and Senior Fellow at Demos, a non-partisan public policy research and advocacy organization. She is the author of Other People's Money: The Corporate Mugging of America and Jacked: How "Conservatives" are Picking your Pocket (whether you voted for them or not). Other People's Money, a devastating exposé into corporate corruption, political collusion and Wall Street deception was chosen as a Best Book of 2004 by The Economist, Barron's and The Library Journal.
Before becoming a journalist, Nomi worked on Wall Street. She has appeared internationally on BBC World and BBC Radio and nationally in the U.S. on CNN, CNBC, MSNBC, CSPAN, Bloomberg TV and other TV stations. She has been featured on dozens of radio shows across the U.S. including CNN Radio, Marketplace Radio, Air America, NPR, WNYC-AM and regional Pacifica stations. Her articles have appeared in The New York Times, Newsday, Fortune, Mother Jones, The Guardian UK, The Nation.com, The American Prospect, Frank151, The Left Business Observer, LaVanguardia, Against the Current and other publications.