The real state of the union: Economy

Americans have already heard the Washington storybook tale of inequality many times. According to this popular yarn, government is an innocent bystander. However the real story is that the government has instituted a number of policies over the last three decades that actively promote inequality.

At the top of this list is trade. We have explicitly pursued trade policies designed to put our manufacturing workers in direct competition with low-paid workers in the developing world while largely leaving in place protections for highly paid workers such as doctors and lawyers. This has put downward pressure on the wages not only of manufacturing workers but also of tens of millions of workers in other industries, where manufacturing workers sought jobs after they were laid off.

The policy of repeated bailouts and subsidies for the financial industry has hugely added to inequality. Many of the country’s highest earners are employed at places such as Goldman Sachs and Citigroup, which would have been put out of business in the financial crisis without massive government assistance. In addition, Bloomberg News has estimated the size of the ongoing government subsidy to the too-big-to-fail banks at $80 billion a year, more than the annual budget for the Supplemental Nutrition Assistance Program (food stamps), which was cut by $5 billion in November.

The government has also pushed a patent policy, both domestically and in trade agreements like the Trans-Pacific Partnership, that allows drug companies to get rich at the expense of everyone else. The amount transferred from the rest of us to drug companies because of government-provided patent monopolies is close to $300 billion a year, or $1,000 per person.

It would be welcome if the government raised the minimum wage or took other steps to help people at the bottom, but such steps would follow massive steps taken by the government to increase inequality rather than reduce it. 

Economic inequality has run amok in America. Most Americans are still trying to recover from the devastating financial crisis of 2008. Yet Congress continues to subsidize the rich while slashing essential programs such as food stamps and unemployment insurance and even considers cuts to Social Security. The deficit is shrinking, but many in Washington insist falsely that we must cut further into the social safety net right now or risk catastrophe.

While many corporations pay zero taxes, Americans are warned of legions of lazy men who cheat the taxpayer through disability fraud. Reality check: Recent increases to disability rolls are mostly due to simple demographics trends because — guess what? — baby boomers’ bodies are aging, and thanks to increases in the retirement age, they have to wait longer to get Social Security.

Through all the fearmongering and posturing, the American people nevertheless remain clear about what they want. The majority do not want cuts to either Social Security or Medicare. They prefer to extend benefits for the jobless. They don’t like cuts to food stamps. And they don’t think that the rich are paying their fair share in taxes.

Sen. Elizabeth Warren and others have taken a step in the right direction by backing an expansion of Social Security so that seniors will better able to cope with rising costs. As Americans face an oncoming retirement crisis — with older workers confronting retirement with reduced or eliminated pensions, limited 401(k)s and chronic job insecurity. Obama would do well to consider this plan.

Fifty years after President Lyndon Johnson launched the War on Poverty, the safety net is not as strong as it should be. Treating the unemployed, the sick, the disabled, the poor and the elderly decently is a both a moral and economic necessity. In the richest country on planet Earth, everyone can and should live in dignity. 

The Affordable Care Act has been a wild ride. The botched rollout of HealthCare.gov was neither the first nor the last serious problem associated with the new law. Polls show that Americans give the program low marks. And because of these poll numbers, Republicans will continue to reject and ridicule the new law for the immediate future. The ACA may well cost the Democrats politically in the 2014 midterms.

But here’s the thing. The ACA, in its imperfect, overly complicated way, has become part of the fabric of American life. Its basic premises are widely accepted, even among those who say they oppose “Obamacare.” Almost overnight, Americans embraced the basic premises that underlie health reform: Insurers shouldn’t be allowed to discriminate against people with existing conditions. All people deserve access to some form of health insurance they can afford. Insurance actually needs to work if you become very sick or seriously injured. People shouldn’t lose their homes because they get sick with cancer.

The ACA’s main pillars of expanded health coverage kicked in on Jan. 1, and about 10 million people are already covered. Some are young adults stayed on their parents’ employer-based plans; others signed up through the new marketplaces or benefited from expanded Medicaid. This is happening in wealthy blue states such as California and Connecticut, but the impact is greater in low-income red and purple states like Arkansas, Kentucky and West Virginia, where a striking number of poor people are finally getting help with their medical expenses.

Many Republican governors and state legislatures continue to spurn the Medicaid expansion. This politics of impunity — whereby states withhold coverage from 5 million people — is flat out disgusting. Still, there is no going back. It took about seven years for Deep Southern states to accept Medicaid. I doubt the ACA will take that long.

Scholars of the modern presidency agree: President Barack Obama entering the lame-duck period of his presidency. Presidents Ronald Reagan, Bill Clinton and George W. Bush accomplished very little in the tail ends of their times in the Oval Office, and President Obama must be aware of this history. As his popularity sinks in the polls, and much of his energy is put to making sure his previously accomplishments in health care don’t implode, there’s very little he’ll be able to do going forward.

This is a problem, because there are many problems that still require a government answer. And more than that, the future of liberal politics is in doubt. Part of the appeal of President Obama has always been the idea of him as a generationally transformative politician, removing us from the dark years of conservative ascendency. But he’s always been fundamentally constrained by that ideology. Passing a version of universal health-care reform has been the cohesive goal of liberal politics for the past few decades, but with that gone it isn’t clear what is next. If the President wants to move beyond that and help define what comes next, there’s little time left.

Luckily, each problem has a solution. To fix what Congress isn’t, he’ll need to use the executive branch more aggressively. The first stop is to try and target climate change through the executive action, supporting the EPA in new rules designed to combat carbon in the atmosphere. The second is to work to boost wages through executive order, for instance by increasing the minimum wage that private government contractors pay their workers. Both steps are in process, with rules on carbon due this summer and the minimum wage push leaked this morning. President Obama will have to explain clearly the stakes and motivations for why he is taking these actions tonight.

What about the future? All signs point towards liberals using inequality as a way of focusing public concern The inequality of an economy that only works for a select few, that leaves full-time workers with insecurity and stagnating wages, and that leaves half of Americans falling behind. Republicans will counter that inequality is just a consequence of a free market of individual choices and actions that redounds to everyone’s benefit. The poor don’t work hard, while the rich work very hard. The poor don’t marry, but the rich do. And so forth.

President Obama will have to describe how the government plays a central role in all these outcomes. He’ll have to make the case that the government has a responsibility for tackling inequality. And he’ll have to explain how his actions, from financial reform to building out the safety net, have tried to reverse these trends and will continue to be necessary going forward.

It’s not an easy task. And, unfortunately, it couldn’t be more urgent.

Our democracy is founded on open, competitive elections. But the integrity of such elections is in doubt because of the corrupting influence of money.

Four years ago, the Supreme Court’s Citizens United decision allowed unlimited spending for and against candidates by corporations, unions and trade associations. Opinion polls after the controversial verdict showed that Americans overwhelmingly opposed it. This popular disdain was in no small part anchored in the court’s rationale that “corporations are people.” With the growing influence of super PACs and 501(c) 4 “social welfare” organizations in the political mix, we’ve seen that often, these outside groups are neither convincingly independent nor apparently organized to support the social welfare but are, in fact, blatantly political and opportunistic.

The new post–Citizens United system presents an enormous challenge to the transparency that citizens require to fully and wisely participate in our democracy. It includes complex networks of shadowy organizations, operatives and donors who coalesce not only to inject millions of dollars into the process — sometimes into a single race and sometimes more than what all the candidates together spend ­— but also to churn huge sums (the Center for Responsive Politics has uncovered at least $760 million so far) among one another, presumably to launder the money of its sources.

Gridlocked Congress isn’t going to offer a legislative solution to this lack of transparency anytime soon, nor are lawmakers likely to enable the IRS to pick up the enforcement mantle that the Federal Election Commission dropped years ago. In the meantime, we can take meaningful steps by voicing support for changes to our campaign-finance system that bring more transparency and civic engagement to the issue, investigating the true sums, sources and motivations behind the money and demanding a serious debate about appropriate solutions.

Don’t be fooled by news stories of big settlements between the government and megabanks. Such settlements reflect modest prices for the banks to pay for reaping record profits and paying huge executive bonuses.

As New York federal Judge Jed Rakoff maintains, prosecuting individuals provides more of a deterrent than sanctioning faceless corporations. Sen. Elizabeth Warren agrees that settlements don’t deter banks from putting themselves before consumers and investors.

In spite of multiple promises to stop committing crimes, global banks are recidivists. Some, like Wachovia, UBS and Barclays, keep getting into trouble with the law. The Securities and Exchange Commission and the Department of Justice have slapped JPMorgan, Citibank and Deutsche Bank with consent decrees — orders to cease and desist committing crimes — more than once.

The regulators might as well say, “Go forth and commit more crimes, with impunity.”

Enforcement actions for accounting fraud and auditor complicity are down again, according to SEC enforcement statistics, for the 12th year in a row. Robert Khuzami, the SEC director of enforcement during the financial crisis, said he believed accounting fraud was no longer a problem. He dismantled the SEC’s Fraud Task Force in 2010 and redirected resources to fighting Ponzi schemes and inside trading.

When SEC Chairwoman Mary Jo White and a new enforcement team arrived in early 2013, the agency belatedly realized that, contrary to Khuzami’s claims, accounting fraud is alive and well in corporations. The awakening was based, in part, on the high number of tips mention accounting fraud that were coming in via the SEC’s new Dodd-Frank whistle-blower line. White’s team set up new Financial Reporting and Fraud Task Force, aka the FRAT Force, and Operation Broken Gate, an initiative to target complicit gatekeepers like corporate auditors and lawyers.

The proof of a renewed regulator emphasis on accounting fraud, however, is not yet evident. Thank goodness private investors are willing to sue and go to trial to accomplish what the SEC and Department of Justice are still very reluctant to do: ensure that shareholders are compensated for their losses and send a strong message that fraudulent conduct, by corporations and individuals, will not be tolerated. 

Over the past few years, we have heard about the country’s investment in infrastructure in terms of an endless stream of numbers: $50 billion in repairs to 70,000 structurally deficient bridges, $10 billion to create a National Infrastructure Bank, $48.1 billion from the stimulus, $8 billion of that devoted to high-speed rail and $1.3 billion more for Amtrak. The list goes on. Yet the United States still lags behind much of the rest of the developed world in its existing public infrastructure.

The latest Global Competitiveness Report ranked the U.S. 15th in public infrastructure quality — eight notches lower than in 2008.    

It is too early to judge the return on investment for some of these programs, but the amount the nation is spending needs to increase many times over. For example, the Federal Highway Administration says that just to eliminate the nation’s backlog of those structurally deficient bridges (1 in 9), we would need to invest over $7 billion more annually. With a House of Representatives dominated by fiscal hawks from the Republican Party and deficit hysteria the rule of the land, this is unlikely to happen anytime soon.

But there are some bright spots. In Los Angeles County, federal aid through the America Fast Forward initiative has augmented local support for infrastructure projects that could see public-transit ridership increase by 77 million trips per year, 160,000 construction jobs created and an estimated 10.3 million gallons of gasoline saved yearly.

More often than not, however, these types of projects are muddled by complicated public-private partnerships and dubious state contracts and subsidies to businesses. Direct federal and state programs to revolutionize the way we commute (and address our clean-air needs) are still a pipe dream. For this generation, at least, we will be sitting in traffic for half a day trying to get from San Francisco to Los Angeles instead of spending a couple of hours on the train.

We will continue to hear Washington reel off numbers. But they will not be close to the amount that we need and that our looming environmental crisis demands.

In 2009 many advocates in the food movement had high hopes for positive change in Washington. Yet on most critical food-policy issues, we have covered little ground. It is not just because of a broken Congress, which has become an embarrassment for its inability to pass the 2012 farm bill. There are three food-policy issues we must address in the coming year.

One is the labeling of genetically engineered foods. In 2007, Americans were promised action on this front, because, as then-candidate Obama said, they “should know what they are buying.” And yet the White House has been silent on this issue. Instead, we have seen an arrogant food industry asking the feds to wipe out the states’ right to require labeling, in an effort to stop a growing grass-roots movement for food transparency.

We must also address the crisis of antibiotics in meat. The Centers for Disease Control and Prevention issued a dire report in September acknowledging how excessive use of antibiotics in farm animals contributes to the deaths of thousands of Americans each year from antibiotic-resistant infections. Yet thus far, the only response from Washington has been to issue voluntary guidelines for the meat industry.

Finally, we must stop marketing junk food to children. Happy and well-intentioned partnerships with Subway are not enough. The worst junk-food offenders, including McDonald’s and General Mills, continue to exploit children using toys and cartoon characters while Congress ensures the feds take no action.

After eight years of inaction on food policy under George W. Bush’s administration, we were promised change. It is distressing that, because of politics as usual in Washington, this change has still not come. 

As keen as wealthy investment bankers are to deny that inequality demands drastic structural solutions that may require higher tax rates and stronger regulations, they cannot deny the grim reality faced by average workers.

In fact, Wall Street research provides some of the most damning evidence that the plight of the wage slave is pitiful and without much hope.

In a recent economic update, Goldman Sachs noted that for the fourth consecutive year, hourly wage growth was nominal – about 2 percent. By any measure, that is anemic. And while most economists expect the rate of wage growth to eventually hit 4 percent, they predict it will be a long time before it happens.

This, of course, is something a college graduate fortunate to be working as a barista could tell you.

In August of last year, J.P. Morgan Chase sent a shiver through economic forecasters when it concluded that the Great Recession had, in effect, cut America’s potential for long-term growth in half.

And if that grim view were not sufficiently scary, three months later a group of esteemed Federal Reserve economists published a paper that went one-step further, warning that the ability of the U.S. to compete in world markets will be destroyed if current economic trends are not reversed by government action.

This, by any measure, is sobering stuff; doubly so when you consider that these warnings emerge from the bosom of the financial establishment.

Still, Washington yawned and the markets shrugged.  

Even if it were possible to turn the national clock back to undo the damage Washington and Wall Street inflicted on workers over the last 20 or 30 years it would not make much of a difference. Projected increases in computational muscle (more compact hardware that calculates more, faster); software neuroplasticity (artificial intelligence that learns from its mistakes and adjusts for future tasks); and industrial robotics (replacing still more human workers with machines) would soon return us to today’s ground zero.

The future looks promising to pretty good for maybe 20 percent of Americans. Prosperity from fracking shale could gin up that number. But for a large majority of the nation, the horizon is threatening, precarious, or bleak.

From the point of view of real estate investors, big cities will continue to regenerate. Jane and John Doe, however, will not benefit. The scenes played out in San Francisco, Boston, and New York will multiply: Ghettos will gentrify, the nation’s surviving blue-collar workers will be priced out of their neighborhoods.

Except for atolls of low-income housing, and inadequate colonies of “affordable” units for the grey-collar workforce, the indigent, the working poor, and what remains of the lower- and middle-middle classes will be bound for the suburbs and exurbs.

Call it Blade Running America: where technology will trickle down, and the luxury ziggurat condos of the few will be but dreams for the many, whose lives melt into the margins like tears in the rain.