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Worldcrunch

When The Middle Class Decides: The Economics Of Obama vs. Romney

Article illustrative image Partner logo An American squeeze

NEW YORK - In the focus groups he organizes to understand American voters, Democratic Party pollster Stan Greenberg says lately participants have actually broken down emotionally when answering questions about their lives.

“Three-quarters of the population are struggling. Families are overwhelmed, salaries have decreased by 20% and health benefits are falling,” Greenberg, co-author of the book "It's The Middle Class, Stupid!," said during a recent conference at the 92nd Street Y in New York.

Vice President Joe Biden said “the middle class has been buried for four years” after the country was hit by its toughest economic crisis ever in 2008. The Republicans used the phrase as ready ammunition, noting that the "four years" corresponds to the time President Obama has been in office. 

Yet still, it does depict a sad reality; and the economics of crisis will largely be driving Tuesday's final showdown between President Barack Obama and his Republican challenger Mitt Romney.

Even after the recession technically ended in June 2009, Americans' medium real incomes kept falling from an annual $53,718 to $50,054 in 2011 (a 1.5% drop compared to 2010) according to the US Census Bureau. After a steady three-year increase, the poverty rate finally stabilized in 2011. Yet it still represents 15% of the population – 42.6 million Americans.

“Obama’s campaign team sums up the stake of the election in one single question: who is going to protect the middle class? Who is going to fight for them?,” says Robert Schrim from New York University's Wagner School of Public Service.

The Republicans have a different recurring question: "Are you better off than you were four years ago?" If the answer is no, then logic implies that Americans turn to a new President.

That message has reached Dennis Wheeler, 54, a sign-language interpretor in Danville, Kentucky, who until recently had been undecided between the two candidates: “I would like to see what a businessman can do in office,” he says.

Kathleen Pretty, a 50-something from Florida, one of the states hit worst by the real estate crash, saw her home foreclosed, and was forced to sell her ice-cream van to pay back her debts. She spends $800 a month to pay back her student loan and struggle to make ends meet. Her husband found a job in another state. 

“Mitt Romney," she says, "doesn't know what it's like to survive from one paycheck to the next.”

Frozen consumption

The Republican only recently directly addressed the demands of the middle class, vowing to create 12 million jobs in ten years through tax cuts on companies, fewer regulations on small businesses and the development of the energy sector. On the other hand, Barack Obama wants to invest in education, energy, infrastructures and encourage export manufacturing industry through favorable tax treatment.

In a country where household consumption represents 70% of GDP, a robust middle class is vital. Yet the current recovery is due to an increase in supply and the resurgence of two sectors in particular: the manufacturing and the mining industries (as the latter benefits from the current shale gas and oil boom).

But the boost in these sectors was offset by a decrease in household revenues, as well as growing disparity in income. "Households lost 40% of their wealth between 2007 and 2009. The US now ranks 26th in revenue mobility,” notes James Carville, who co-wrote "It's the Middle Class, Stupid!," with Greenberg. “The American Dream has been downsized.”

The American middle class suffered more during this recession than during in any previous one because it could no longer support itself through credit, while the collective value of their investment portfolios and homes were plunging. 

The recovery is slow and has not yet made up for the loss of more than eight million jobs after the financial crisis. The five million new jobs created since Obama was elected are mostly found in the private sector, as the public sector faces layoffs at both the local and Federal level. In the private sector, a significant number of jobs were relocated (abroad or to some other parts of the US where labor and real estate are cheaper), while companies mainly focused on improving their productivity rather than creating new jobs.

The two candidates offer two very different recipes for getting back on the road to prosperity. Mitt Romney wants to limit the role of the Federal government by slashing taxes and regulation. He proposes cuts to every line in the budget except Defense, and a reform of social programs (health care and pensions) to limit the deficit.

Obama wants to protect the current social system while limiting some if its costs. He wants to invest in education and infrastructures, raise taxes on the richest, with the objective of reducing the deficit.

A deep divide

Though it had emerged well before the 2008 crisis, the phenomenon of growing inequalities has now come to the forefront. Since 1975, nearly all revenue increase have taken part among the 20% richest households. Since 1996, dividends from shares and capital gains have increased faster than salaries. To belong to the 1% richest, one needs a minimum 385,000 annual income, with the median at $1.5 million.

The Occupy Wall Street movement was the voice of this new gap that separates the masses from the richest: 99% vs. 1%. “This movement is very important because it has changed the narrative,” explains Stan Greenberg. Before, we only talked about budget deficits and debt limit, now we have started talking about equity and the fate of the middle class. Despite its brief life span, the movement did manage to bring social justice into today’s political debate.

Lynn Bos, a social worker from Kankakee, Illinois, says widespread class-based divides is new to America. "Before, the rich were not like that. We all lived together in the same community, we would easily mix. This is America," she said. "Nowadays, rich people live  in houses that are separated from the rest. It was not the case before.” 

Alex Judd, a 35-year old unemployed veteran, says the economics are rather simple. “The middle class have been deprived. The rich are getting richer, and we can’t even find jobs.” 

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About this article source Website: http://www.lesechos.fr/

France's top business daily, Les Echos covers domestic and international economic, financial and markets news. Founded in 1908, the newspaper has been the property of French luxury good conglomerate LVMH (Moet Hennessy - Louis Vuitton) since 2007.

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