Steve Klingaman

Steve Klingaman
Location
Minneapolis, Minnesota,
Birthday
January 01
Title
Consultant/Writer
Bio
Steve Klingaman is a nonprofit development consultant and nonfiction writer specializing in personal finance and public policy. His music reviews can be found at minor7th.com.

Editor’s Pick
JUNE 14, 2012 8:35AM

Middle Class: “Help, I’m MELTING!”

Rate: 18 Flag

stiglitz

Nobel Laureate Joseph Stiglitz:  we oughta listen to this guy.

A new Fed survey and a new Joseph Stiglitz book remind us that we have yet to assess the long-term damage of the economic meltdown much less come to terms with it.  Middle class families saw 40 percent of their net worth melt away between 2007 and 2010, according to a study by the Federal Reserve.  Median net worth fell from $126,000 to $77,000, primarily due to plummeting home values.  While the stock market recovered 91 percent of its 2007 peak value by 2011, home prices have remained deep under water.  And a huge chunk of middle class net worth is locked into their homes.  Since the wealthiest Americans have a much higher exposure to the stock market, they fared better.  And the top 1 percent?  They made money off the meltdown.

            The middle class, however, was rocked all the way back to 1992 on the net worth scale.  Their median income fell 8 percent, from $50,000 to $46,000.  If you owned a house, the poorer you were to start with, the harder you were hit in the freefall.  But higher-earning middle class families experienced a larger percentage loss of income than did lower middle class families, for reasons that are not yet entirely clear.  It is possible that SNAP food aid and unemployment compensation played a larger roll by way of supporting lower income families in percentage-of-income terms.  In some respects, it can be said that lower-earning families just did not have as far to fall.

     Add to this misery the fact that many people have been forced on to Social Security prematurely, cutting their annual income for life, and the fact that many families finance their later retirement with the proceeds of the sale of their home, well, pretty soon you are talking about permanently reduced circumstances--a lifetime penalty for the sins of the speculative class. 

            Economist Joseph Siglitz’s new book, The Price of Inequality: How Today's Divided Society Endangers Our Future, chalks it up to unregulated banks running amok.  Where’s the news there, you ask?  The answer may be that after a full year of Republican campaign side shows and distractions, Stiglitz, a professor at Columbia University, retains a laser focus on the real causes of the crisis, and responses to the crisis that did not help or made it worse.

            Selling out to the banks was the deepest fault in the federal response to the meltdown, according to Stiglitz.  The way banks essentially waged war on homeowners in arrears on mortgages was perhaps the most disgraceful chapter in American consumer-vendor relationships since the Great Depression, yet…the silence is deafening.

            Second, the banks playing roulette with the house’s money—backed up by implicit taxpayer bailouts—was probably the second single worst example of generation-busting malfeasance.  This is an appropriate observation the day after Jamie “Dead Wrong” Dimon eats fake crow over stupendously irresponsible investment schemes for Congress.  But, as Stiglitz puts it, nothing changed. 

Land of Opportunity?  Not So Much

            Stiglitz points out that in 21st Century America the best indicator for a life of poverty is being born poor.  Bootstraps, it seems, are working better in a number of other industrialized nations.  The old clichés, dear as they are in an election year, have been trotted out to no avail for too many seasons, yet…who questions them in public policy discussions?  There is only one line to take if you are running for office:  this is the greatest country in the universe bar none no matter what and how dare you hold us to any standard than our own, dear, fantasy standards.

            Democracy, says Stiglitz, may be melting, functionally twisted as it has become so deeply responsive to what Stiglitz refers to as the rent-seeking class—the class that earns its living off of passive levies on others…investments, rents, loans, hedges, bets, you get the idea. 

            As to the conservative response the meltdown, Stiglitz said in an interview with Democracy Now’s Amy Goodman:

So, the point is that we’ve done this experiment in austerity over and over again. The first example, you might say, in modern history was Herbert Hoover when he responded to the stock market crash by austerity, under the influence of his Secretary of the Treasury Andrew Mellon, and we had the Great Depression.

Yet, the Republican platform on debt and government spending is essentially the message of austerity.  Stiglitz says that government employment should rise during a crisis, not fall by a million jobs, as has been the case.

            The reality is that markets failed because free marketers were gaming the system in the absence of real regulation.  Stiglitz, who worked  as the Chair of the President's Council of Economic Advisors for the Clinton administration, rues the day Glass-Steagall was gutted, and notes it was gutted after he departed and over his strenuous objections.  But G-S was just the tip of an iceberg of regulatory failure at every turn.

            How much does this matter?  In real terms, we will be digging out from the meltdown until at late as 2022.  A lost generation of humanity is somewhere in the breach, looking for some bootstrap action, while the system grows more and more rigged.  Stiglitz, like so many of us, gives the nod to Citizen’s United on that score.  But in countries like Spain, twentysomething unemployment is equal to the employment levels of the Great Depression.  We are talking about the economic fates of millions of people here, and the predominant political rhetoric of the moment doesn’t scratch the surface of causation, accountability, or cure, if indeed any cure exists other than time.  The notion of blaming the economy on Obama is preposterous.  While he may have racked up a mere six out of ten in terms of his early responses to the crisis, conservatives would flog him for every positive step taken by the administration while calling for nothing more that a National Magical Thinking Festival:  a festival of platitudes and broken shills for an überclass that gamed the system, suffered no accountability, and would now reassert control over the whole enchilada if platitudes, denial, and billions are enough to buy it all on the cheap.

            Stiglitz, fortunately, offers a voice of reason, a voice that respects the essential nature of the middle class, and a voice that asserts in most compelling terms that the middle class is melting.

 

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Gosh Steve, it's dem guldurned Mezican wetbacks and other riff raff who iz stealin' dem Amerikan dream. Out wid dem illegal immigrants, and gayz. Gay marriage has sapped dem vital juices of Amerika..hic...Obama is a Kenyan Mau Mau Kommunist and we need to burm MORE coal to get ahead...hic, wink
I am not so sure that the middle class as we like to call ourselves, ever really existed. It has/had such a diverse range. It is an umbrella term for everyone in the middle and not a model. Many perceived the Cleaver life as the model. We, the people, sought bigger and more. We, they were suckers for the pitch. Why not a car for each adult a cell phone for each child. More things cost more to run.

We are all being managed by a few, and one has to wonder about such things as "petro-dollars" and other international deals that few of us understand or even know about. Are we really chasing Al Qaeda or are we expanding our sphere of influence for economic gain?

A great deal of our retirement income was eroded due to the Lehman debacle. Safe was not safe. Ratings were lies.

There is little we can do about our net worth. Silver is up...gold is down. What is worth a lot one day is worthless the next. Once upon a time Tulip bulbs were currency.

Our kids have lost jobs and been forced to sell their home. They lost hard earned equity. They will not be able to recover and so their lives will be different than the model they aspired to. Their inheritance if there is any, will be smaller.

People my age are selling larger homes and moving into apartments.
They are spending less on things and more on health care.

Our house is worth less than the peak, but more than what we paid for it. Change is happening rapidly and like the ice caps the melt down is evident. It is good to know, but there is little any of us can do about it.
Very informative post.

I agree with this statement: "Stiglitz says that government employment should rise during a crisis, not fall by a million jobs, as has been the case." I would add to that: during a recession or economic downturn, you increase the safety net. Once the economy picks up again, you reduce it (same with government spending).
Another great column Steve which only goes to show we have to keep hammering away with specifics so that conservatives are not allowed to drift away into generalities and talk about capitalism not for what it does and how it works but in metaphysical terms like "freedom" and "individualism" which is clearly the direction they are going.

The other thing to watch out for is projection. Conservatives have always tried to lay their inner demons at the feet of their enemies, but they seem to be perfecting it now to disguise their radicalism -- accusing Obama of trafficking in "envy" with his attacks on Wall Street at the very same time the lesson out of Wisconsin seems to be that public sector workers provide target rich opportunities for exploitation, with their wages and benefits fair game for stoking envy among the unemployed.

But I was glad to see in your piece that Stiglitz properly defined "rent-seeking" and made it clear that it's connected with Wall Street and the parasitic investor class.

In a piece suggested to me by a right wing relative, here is how James Piereson of New Criterion magazine tries to shift the problem of rent-seeking factions from right over to the left by defining rent-seeking as, in effect, getting tax dollars for doing public work so that "one might describe the Democratic Party as a coalition of rent-seekers."

"These groups are widely varied: trade associations, educational lobbies, public employee unions, government contractors, ideological and advocacy organizations, health-care providers, hospital associations that earn revenues from Medicare and Medicaid programs, and the like. These are what economists call rent-seeking groups because they are concerned with the distribution of resources rather than with the creation of wealth. They consume rather than create wealth. These groups are highly influential in the political process because they are willing to invest large sums in lobbying and election campaigns in order to protect their sources of income. While rent-seeking groups can be found in both political parties, the largest and most influential of them (at least on the spending side) have congregated within the Democratic Party. "
I read the article on this guy too. The middle class, however, does not support the middle class, they support the rich. Until that changes things will only get more out of balance.
Ted, Leave it to creative conservative polemicists to redefine rent-seeking from describing the receipt of passive income by exploiting the prerogatives of ownership to that of describing the contractual relationships between public sector agencies and the governmental agencies that sometimes fund them.

While it remains a fundamental problem of economics that every stakeholder group seeks to protect a public income stream once secured, well-constructed contracts diminish that threat. It is true that Congress sometimes deliberately prevents the construction of good contracts so their campaign contributors can reap the benefits of poorly constructed public programs: the national program to reimburse private tutoring for low-income students is one such example of such deliberate giveaway.

In theory, nongovernmental groups can realize government goals at less expense, and in practice it often works. Many nonprofits, for example, eschew unions in the provision of government-funded services. Sometimes, however, such as with hospital chains, the private machinery gets so bloated that cost savings are lost entirely.

If you unbundle the argument you paraphrase, you find that each class of nongovernmental agency has a distinct relationship to the government, some problematic, some not so much.

But of course in a polemic everything is thrown together: private industry - good, government - bad. Whatever.

These agencies, by the way, are not inherently political. In days gone by, as you well know, before the barbarians rattled the gates of bipartisanship, Republicans routinely defended the prerogatives of government-NGO relationships and the good works they engendered. So the world turns, no?
The argument will be made -- even here in this bastion of liberalism -- that both Parties are the same. That's as absurd a false equivalency as equating Fux News and MSNBC (the former lies, the latter slants -- big difference). That "logic" is one reason this election will be thisclose.

Lefties will be sitting this one out or throwing their vote away on some dreamy Green candidate. Meanwhile, the Right will be voting like a school of fish for a candidate most of them don't even like. That's especially the case with the Religious Wrong, who think Mitt is a heretic, a member of a cult. Doesn't matter -- they'll vote for him anyway.

Yes, Obama has serious flaws, but if Mitt appoints the next two or three Supremes -- well, take down the flag and play taps for this semi-noble experiment in self-government. And say hello to corporate fascism.

But don't blame all this on corporations, they're just doing what they've always done when there are no restraints put on them. Put the blame where it belongs -- on the people who elected the people who removed those restraints -- and that includes every President from Reagan to Bush the Least.

Depressed? You oughta be -- there's not a single sign on the horizon that things are going to get better. In short, the People seem bound and determined to prove Jefferson wrong about their wisdom and ability to self-govern.
I read another piece about this book recently and it, combined with this post, makes me want to go out and buy the book and read it. Except I'm a bit worried that it will make me too damned depressed and angry.
So much of this has been apparent but it just doesn't seem to make any impact on a large segment (I'm including "teabaggers" and other 1% wannabees) which takes an attitude that to "preserve" what they've got they have to make sure that no one else "gets" anything.
This is not the America I grew up in and it's not the America I want to be in. But I'm stuck because the "system" has been "gamed" to the extent that de facto disenfranchisement is now the norm rather than the exception and efforts such as were seen by the "Occupy" groups last year were largely ineffectual.
It's just too bad "Occupy" hasn't come back this summer now that I'm unemployed and have the time to "participate".
Apparently most Americans still fault Obama's predecessor for the mess but that doesn't get us out of the mess--especially when the "right" and "Bush/Cheney minions" still have, at minimum, the power to block anything constructive.
I'm thinking back to the first 2 years of the Obama administration when the 60 vote "super majority" was lost in the U.S. Senate and everyone weeped and wailed that legislation could no longer be passed because of an inability to establish "cloture". Bullshit and lack of the balls needed to push forward.
One wonders what it will take to ever move things in a positive direction again. Certainly not a President standing up in front of the American people as Bush did extolling the virtues of consumer credit (remember that?).
I'm incredibly frustrated and disheartened. And there's a part of me which wishes for the "soylent green" and to trudge along with the "oh, weee oh" song from "Wizard of Oz" playing in my brain to be made into that final product--"it's people!".
As the comments here clearly show, the middle class is determined to melt itself out of existence. It just flatly refuses to recognize that ALL politicians and political parties are owned, lock, stock, and barrel by big money. The bus is being driven in the direction big money wants it to go and changing drivers isn't going to alter that.

Sometimes I just want to scream out, "It's the system, you twits; the system!" No good turning to socialism either because that'll only take us from the frying pan into the fire.

Can no one see that we need to determine what our economic system and our social system SHOULD do for us and design systems that WILL do that? Greed-capitalism is a rank failure at providing all of our citizens with a decent income. The proof of that is the growing popularity of socialism and socialist ideas that would make big government, riding on the backs of the middle-class/workers, the norm.

But greed capitalism isn't the only form of capitalism available to us. It is well within our ability to design a form of capitalism and control it tightly and strictly so that it is a useful tool we can use to achieve our social goals.

.
You wrote here: "Add to this misery the fact that many people have been forced on to Social Security prematurely, cutting their annual income for life, and the fact that many families finance their later retirement with the proceeds of the sale of their home, well, pretty soon you are talking about permanently reduced circumstances--a lifetime penalty for the sins of the speculative class."

I know plenty of folks who would fall into that category. It's desperately sad in that they worked their whole lives away in order to enjoy their golden years. Now that's turned to ashes. Horrific consequences, which all of us must bear.
Rated
Thank God! Good riddance to those posers! I'm all for a world with only the super rich and near-slave class of people.

Can you think of anything more annoying than a class of individuals neither struggling nor truly wealthy, yet wealthy enough to act superior to the poor and get in the way of rich?

Hopefully disease kills off most of the new poor when this health care nonsense fails.

Then the rich will have a nice, quiet time of it.
So what remains of the middle class has been knocked back to 1992? That means there's hope that I will still be around when we can once again party like it's 1999.

It's hard not to wonder how future generations will look back on this era. I have a faint hope that the society will survive to see another reasonably prosperous age of enlightenment where they'll wonder how a supposedly great democracy, the Rome of its era, managed to act against its own interests on so many fronts. That's assuming of course that the coming global warming crisis won't turn society as we know it into something unrecognizable. But it looks like things must get worse before they get better and I'm only sure of the first part of that equation.
stiglitz is one of the most brilliant economists alive. he doesnt drink the purple coolaid. and for that, nobody knows who he is. see also naomi klein "shock doctrine" to understand the current reality
the lower class being hit slightly less seems to be easily explained in that they have less property/real estate.
more on econ in my blog.
Abrawang, Despite it all, Roman analogies included, you're almost...cheery. Resiliance, not resignation. I like that, even if you are only sure about the first part.

VZN, Yes, the lower class has less exposure to begin with because they had less to expose.

Doug, yes, and they will have to do their own landscaping.

Skypixeo, so check out Stiglitz. He has a few of those designs.

Walter, ""oh, weee oh" ... you mean the Republican convention theme?

Best, all, thanks for comments.
Steve,

Yes. I will indeed check him out.

I too have some designs.....

;-)
.
too bad, but like my math teacher used to say, "it's all your own work, you want a better score, be smarter."

'middle class?' there's one indicator of why the wheels came off. no one ever talks about the lower class, do they. there is one, you know, just ignored. there is no communal spirit in america, no sense that everyone should have a decent life. nope, there's only ten seats at the table, and always more people scrabbling for them. once you accept that there should be 'losers,' living under bridges, then what proportion joins them is a trivial matter.

america is not a democracy. it was the intent of the constitution that the rich would be and remain in control of america. the people of america have accepted this condition, have accepted that a percentage of them would be destitute, and only pleaded that someone else would be standing when the music stopped.

if you won't fight for the good of all, don't be surprised if no one will fight for you.
"--a lifetime penalty for the sins of the speculative class."

That's what reduces me to a sputtering, howling mess every time I think about it, which is often. The amount of anxiety and misery caused by such profligacy is just staggering. That 40% is just gone. It's never coming back. There aren't enough bootstraps to make up for it.
Don't you want to be a POPsicle then? I hear you but what to do?
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Thanks for an excellent essay. Rated. We need to reverse things before there's no turning back. I heard Diane Rehm's interview with Joseph Stiglitz on NPR & his book is next on my reading list.

You may also want to check out my article on the intentional GOP sabotage of the economy. You can find it here:

http://open.salon.com/blog/brokenwing/2012/06/20/republicans_commit_economic_sabotage_while_press_sleeps