U.S. ECONOMY : A LONG WAY DOWN / THE NEW YORK TIMES EDITORIAL ( RECOMMENDED READING )

September 16, 2009

Editorial

A Long Way Down

It is sadly predictable that in a recession, the poor get poorer and the middle class loses ground. But even a downturn as deep and prolonged as this one cannot fully account for the desperate straits of so many Americans.

The Census Bureau reported last week that the nation’s poverty rate rose to 13.2 percent in 2008, the highest level since 1997 and a significant increase from 12.5 percent in 2007. That means that some 40 million people in this country are living below the poverty line, defined as an income of $22,205 for a family of four.

The middle class also took a major hit. Median household income fell in 2008 to $50,300 from $52,200 in 2007. That is the steepest year-to-year drop since the government began keeping track four decades ago; adjusted for inflation, median income was lower in 2008 than in 1998 and every year since then.

Clearly, the recession has been brutal. But even before the recession, far too many Americans were already living far too close to the edge.

As is now painfully evident, the economic growth of the Bush era was largely an illusion. Poverty worsened during most of the boom years and middle-class pay stagnated, as most gains flowed to the top. In a recent update of their groundbreaking series on income trends, the economists Thomas Piketty and Emmanuel Saez found that from 2002 to 2007, the top 1 percent of households — those making more than $400,000 a year — received two-thirds of the nation’s total income gains, their largest share of the spoils since the 1920s.

Because many if not most Americans gained little to nothing from the Bush “growth” years, they have found themselves especially vulnerable to the recession.

Federal stimulus spending has helped cushion the blow. The question going forward is whether an economic recovery, when it comes, will help the poor and middle class or whether the top-heavy favoritism of the previous expansion will reassert itself.

The answer depends on how policy makers foster and manage a recovery. Economic growth alone does not guarantee job growth. Congress and the Obama administration must extend certain components of the stimulus package until employment does revive, including unemployment benefits, food stamps, tax breaks for working families with children and fiscal aid to states.
Policy makers must also resist the reassuring but false notion that renewed economic growth can, by itself, raise living standards broadly. Government policies are needed to ensure that growth is shared. Reforming health care so that illness is not bankrupting — for families or for the federal budget — would be a major step in the right direction.

The administration has also said that it would let the Bush-era tax cuts for the rich expire as scheduled at the end of 2010. More progressive taxation needs to be accompanied by more progressive spending, on public education and on job training and job creation. Support for unions and enforcement of labor standards would also help to ensure that in the next economic expansion, a fair share of profits would find its way into wages.

As the Bush era showed, the economy can grow without any of that happening. But it also showed that such growth is neither defensible nor sustainable. With half the population falling behind or struggling to keep up, the economy cannot generate secure and adequate spending, investing or upward mobility for the country to truly prosper.

Copyright 2009 The New York Times Company