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In the Battle of Austerity vs. Easing, the Middle Class Loses

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Friday, 31 Aug 2012 10:47 AM Current | Bio | Archive

For the three years between June 2009 and June 2012, the median income for an American family fell nearly 5 percent, to $50,964.

That’s a loss of $2,548.20, on average.

Remember, this was a period billed to the American people as an economic recovery. News Flash: It’s not a recovery if Americans are being made worse off.

It’s also a period that started during the current presidential administration. Even the best spin doctors will have trouble blaming the decline and fall of the American middle class on the last president.

It also explains some of the other things we’ve been seeing, including the 50 percent surge of Americans on food stamps over the past few years, reports of a sizeable minority of Americans who can’t immediately come up with $1,000 in the event of an emergency and the stubbornly high rate of unemployment.

It’s not just the middle class that’s disappearing — soon taxpayers will be a minority in America.

This is occurring at a time when the United States has thrown everything but the kitchen sink into creating a recovery. This period includes the biggest effects of the post-Troubled Asset Relief Program bailouts. It includes record deficit spending. It includes two rounds of central bank easing.

These actions have given us positive gross domestic product growth. It’s given us a stock market that’s up over 80 percent in the past three years. But, clearly, where sustainable things count, like median income growth, these policies have been a major failure.

While many are worse off, government employees aren’t. Historically, due to the certainty of employment, a government job would pay slightly less than one in the private sector. But today, it pays a premium, in part due to lavish benefits and pensions ultimately paid for by the diminishing taxpayer class.

So what’s the solution? Right now, it seems either the current plan of easy-money policies or austerity, sharply cutting back on government spending.

I find that to be little more than a false choice. The answer really lies by doing a little of both, and doing it well. Government must ease back on the deficits, make sensible spending cuts and provide equality of opportunity — not the equality of outcome. That means getting rid of onerous regulations and creating an environment where business can thrive to the heavy lifting of job creation.

The Federal Reserve needs to scale back as well. You don’t sober up a drunk by providing more liquidity. Let markets stand or fail on their own. We can’t really move forward until all the excesses are out of the system.

The root causes of this mess were government and central bank involvement in the economy. As they scale back out, like a trader unwinding a bad trade, we should return to markets that can stand on their own, and with it the return of a robust middle class.

Until then, between the choice of fiscal austerity or loose monetary policies, the American middle class is losing.

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