Fed Economist Cheers Middle Class Squeeze
The contempt of this government for the middle class sometimes becomes blindingly clear.
The New York Times ran a piece Sunday discussing a new Brookings Study showing how cities are becoming polarized, so that only the rich and the poor survive. Not to worry, says an economist for the Federal Reserve. Who cares if the fire fighters, police and teachers can’t afford to live in the city where they work?
Firefighters who want to live in high-priced cities can work two jobs, said W. Michael Cox, chief economist for the Federal Reserve Bank of Dallas. “I think it’s great,” he said. “It gives you portfolio diversification in your income.”
Only an economist would see working two jobs as “portfolio diversification.” The rest of us might just see it as an economic squeeze play in which the middle class has become expendable. Yeah, the rich need the services of these middle class service people, but truck them in from cheaper areas, like so many low-priced electronic gizmos from some foreign country.
This isn’t one rogue economist. This is a highly trained government official in a position of authority who says he just doesn’t care whether cities are places where the middle class can live.
His remark is entirely in keeping with a decades-long series of policy decisions that makes life for the middle class last priority. A new Brookings Report shows that the middle is disappearing from New York, San Francisco, and dozens of other cities. And that’s just peachy, says the only government official quoted in the story.
If no one really cares, then how much easier will it be to cut loose the middle class entirely? Why worry about predatory lending and home mortgage foreclosures, why regulate tricks and traps in credit cards or payday lenders, why fix public schools or think about how to provide universal health insurance? The rich are doing fine, and, according to the Federal Reserve economist, so long as service labor can be imported from elsewhere, life without the middle class goes on very nicely.
As long as one is raising the criminal activities of our nation's economists and economic officials I would like to return to Greenspan. Is there any description, other than "criminal" for the Greenspan recommendation to vulnerable citizens to buy ARM mortgage instruments? Other than benefitting banks and further pauperizing the middle and working class what could be a possible explanation for this?
July 26, 2006 9:14 AM | Reply | Permalink
"Portfolio diversification in income" - sounds as stupid as Dubya praising the woman with 3 jobs as a "great American". Nope - she's just a broke American, trying to pay her bills.
July 26, 2006 9:40 AM | Reply | Permalink
Ever since I first read the National Association of Home Builders
"Affordability Index"
I've tried vehemently to argue that the index is based on flawed inputs. The index is measured by comparing median home sales price to the the median family income of the people that live in a particular metro area. These inputs do not accurately reflect affordability. What really needs to be examined is the median family income of the people who WORK in a particular metro area. - if you work in a city that you can't afford to live in, then that's a problem.
I think Elizabeth's comments and the NYT article back me up in this regard.
July 26, 2006 10:10 AM | Reply | Permalink
I agree that the economic health and vitality of the middle class seems to have lost significance to business and, apparently, economists. It seems that the extinction of the middle class would not be to the advantage of the upper class, because in the long term, losing the middle class would weaken the country. I guess business is focusing more on the global economy than the domestic economy, which seems a bit short-sighted. I think the maintenance of a robust middle class is necessary for the continued existence of this country. It’s the middle class who buys most of the goods and services produced, and that in turn provides wealth to the upper class. It’s the middle class who performs most of the military service when the country is in need, and that requires a sense of investment in the welfare of the country; marginalizing the middle class marginalizes that sense of having a stake in the country. I think business focuses too much on short-term profits and not enough on long-term sustainability. But that isn’t news, is it? In short, I think this country needs the middle-class just to survive; two-class systems tend to be breeding grounds for revolution, which certainly would not be pleasant for the upper class.
July 26, 2006 10:27 AM | Reply | Permalink
I quite disagree with the commonly held view that the "rich" need a "robust middle class" in order to maintain their standard of living.
The "rich" do not make their money selling "goods and services" to the "middle class." They make their money in finance and investment. If because they are earning less, the American middle class invests less in the form of private and government borrowings, the "rich" will switch to investing and providing financial services to the developing nations. Plus ça change . . . .
Nor do the "rich" need a middle class upon which to base a military. Except as a means of inducing the government to borrow (always in the interests of the "rich"), it's not obvious they need a military, at all; and to the extent that they do, a mercenary force structure drawn from the third world should be adequate.
Indeed, there is little evidence to support the idea, romantic though it may be, that the "rich" need the country in order to maintain their life styles. The world, after all, is still a big place.
July 26, 2006 10:51 AM | Reply | Permalink
I think any economist would recognize the comment as a joke. Beating people up for one-line quotes with no context is unfair and pointless.
July 26, 2006 11:05 AM | Reply | Permalink
He wasn't joking, believe it or not. Cox is a modern day Pangloss who, along with his co-author Richard Alms, relentlessly manages to spin every negative economic statistic into something to be cheered. Elizabeth is absolutely right to blast him.
--Greg
July 26, 2006 12:09 PM | Reply | Permalink
Read the Bush family history. They love Mexico and Mexicans. President Bush wants nothing more than to have the U.S. become a nation of poor peons under the thumb of corporate elitists enabled by a corrupt elitist government. Just like Mexico. Flood the market with poorly educated worker bees. Their presence guarantees lower wages for the masses. Their children almost guarantee a substandard education for all. No child left behind. The other side of that equation is no child can speed ahead. To put it bluntly, our government perceives the middle class as a threat. It is only a strong middle class that can keep a corrupt elitist government in check. Destroy the middle class that exists, then salt the earth. The most powerful people on the planet are committing treason before our very eyes. How are they getting away with it? I'll leave you with these words that are not my own:
Treason doth never prosper: what's the reason?
For if it prosper, none dare call it treason.
-- John Harington, 1618
July 26, 2006 4:30 PM | Reply | Permalink
Saying this quote that was so blatantly elitist is a joke is no defense. And if it was not a joke, then I'd say he got off lightly.
July 26, 2006 5:05 PM | Reply | Permalink
According to a recent report by economist Laurence J. Kotlikoff, professor of economics at Boston University, the Federal Government may be standing in line at the local soup kitchen with the rest of us.
Kotliloff wrote of his conclusion that the U.S. government is “bankrupt” insofar as it will be unable to pay its creditors, who, in his use of the term, “are current and future generations to whom [the U.S. government] has explicitly or implicitly promised future net payments of various kinds.” Later, Kotlikoff notes that “Unless the United States moves quickly to fundamentally change and restrain its fiscal behavior, its bankruptcy will become a foregone conclusion”
Debt is feeding the wealthy lenders, and starving the borrowers, regardless of who they are.
Jim Anderson
The Truth About Credit
July 27, 2006 7:07 AM | Reply | Permalink
Cox made a highly rude and insensitive comment.
But Cox has been working for the Fed since 1984--during the Reagan, George Bush, Clinton, and G. W. Bush administrations, according to this Wired article from 1996.
If by "this government" you mean that the current administration is focused on making the entire middle class into moonlighters, and we must all vote Blue, well, try again. Cox is a career bureaucrat; voting blue, red, green or plaid has no bearing on him.
Besides, this is a chief economist of a Fed branch. This is not Bernanke, nor a Fed governor, nor a cabinet member nor staff member, nor a legislator. What authority does he have to make or enforce regulatory or policy matters? Sure, he has advisory credibility to many people, but what else?
July 27, 2006 9:38 AM | Reply | Permalink
Strange how the firefighters appear to be willing to commute, isn't it?
If the rich don't care that their servants live outside the high-rent districts and "thus," don't have "a stake in the place that they’re living in," why should I?
You're not suggesting that I -- one of the un-rich and un-citied -- should subsidize the firefighters' incomes, are you?
July 27, 2006 10:01 AM | Reply | Permalink
This reminds me of our wonderfully dense mayor here in Fort Lauderdale. The city was debating the housing affordability situation (the median house price is a whopping $380,000) and the mayor responded that the only reason there was any sort of problem is because there are too many lazy people in town who only want to work 40 hours a week.
July 29, 2006 1:13 PM | Reply | Permalink
The middle class is suffering an economic squeeze that is not a secret anymore. The price for a home, cost of college for their children, and the cost of gasoline are economic factors that are all but rising. Credit card debt has become an epidemic. Banks and credit lending institutions seemingly ignore this. The bank lobbying is powerful and instead of Congress creating a solution that strengthens the bankruptcy laws it changes bankruptcy in so to burden middle-income families more.
What is the solution?
There is a chance that a candidate for president will have some ideas like John Edwards and Hillary Clinton who have recently talked about the middle class. The current Congress has turned its back on the middle class as banking lobbyist fill the halls of Congress. Regulations on credit lending could help not just the borrower but perhaps lenders. It is no doubt that the most borrowing have a harder time paying debts back. Regulating the truly eligible, not for someone who only has a bank account, makes practical sense. Why do I need a credit card offer in the mail when I can go to my bank or get offers online? Why do television ads sound like getting a credit card means free money? Regulating these small things that are adding up to the large debts makes sense.
July 29, 2006 4:38 PM | Reply | Permalink
Excellent comment that calls in question another core tenet of the economic orthodoxy : globalization. How do you maintain liberal democracies when the richest and most influent section of a country’s population becomes completely unmoored from the destiny of its middle class ?
At least, people like Carnegie knew that their fate and posterity was linked to the fortune of their country, hence their philanthropic activities, small and large. But what is America to its upper crust, its top 0.1% ? For many, probably not much more than just another line in their asset statements.
No, you can't have your own facts!
July 29, 2006 8:00 PM | Reply | Permalink
I don't think any politician is going to provide the "solution". You can't get elected if you are not hungry for power in our system today, which is but a remnant of the original intent. There may be bills introduced, and sold, as helping the middle class, but in reality they will help the banks and credit card companies at the expense of the poor and middle class. Examples - the bankruptcy bill (see how it was titled and sold?) The Federal Reserve Act of 1913 (it was supposed to limit the money changers). Why would that change after all these years?
Jim Anderson
The Truth About Credit
August 8, 2006 9:21 AM | Reply | Permalink