It is unpleasant to close the year on a sour note. The wrangle over the short-term payroll tax-cut extension sums up this frustrating year: the policies being blocked by House Republicans are bad policies, but infuriated voters will blame them nonetheless for their intransigence.
The Senate and the President are pushing for a two-month “fix.” Do we seriously believe that at the end of the next two months Congress will be better positioned to tackle tax reform or to plug our leaky budget? Will some magic elixir in their Christmas stockings imbue our legislators with vision, or leadership?
Americans are so tired of political bickering, and so longing for a plan to get us out of this mess. Which leads me to review the lead editorial in Tuesday's New York Times – one of the most depressing items I have read lately, which is saying a lot.
It would be hard to slip a sheet of cheap copy paper in between the views of the Times’ editorial board and those of the oval office. Thus, the piece is of interest as it reflects the very core of the administration’s policies. It lauds the president’s recent speech in Kansas, which turned up the demagoguery and laid out his campaign themes. The Times takes the ball and runs with it, laying out their priorities for translating “the plight of the middle class into an agenda for broad prosperity.”
It is as hopeless and wrongheaded a platform as one can imagine. There is no notion of building the wealth of the country, of stimulating industry, attracting foreign investors, inviting tourism, providing a solid and secure financial backdrop – nothing, in short, that would inspire private enterprise. Why am I surprised? The New York Times scorns the power of markets and the wealth created through capitalism. To the editors, the upturn in housing starts that so buoyed markets yesterday stemmed not from rising rents, which drove landlords to build more apartments, but doubtless from some government incentive.
The major points of the NYT program to boost the middle class are:
“Creating good jobs” – not through real options like attracting foreign manufacturers or fast-tracking natural gas development, but through “stimulus bills that include spending for public works, high-tech manufacturing and an infrastructure bank.” In other words, the government should fund job creation, even though we have already lost our triple-A status and our spending must – must – come down. By the way, in case the NYT is confused – high tech is doing quite well, thank you.
The Times admits that some of the droop in middle class income has issued from the faster growth of the service sector, which typically pays less well than manufacturing. No problem – raise the minimum wage, they suggest, to narrow that divide. Never mind that service jobs require less education and add less value, which together explain the discrepancy. Hike the price paid for those workers and the nation will be richer. This is poppycock of course – jack up the wages and watch demand for those workers decline. Have these folks ever read an economics text?
“Stopping foreclosures.” The Times sees a clear answer to the overhang of negative equity – force the banks to forgive monies owed. (Talk about creating absolute chaos in the marketplace, keeping it hanging in limbo forever.) Moreover, they encourage Mr. Obama to “opt for a thorough federal inquiry” into “banks’ conduct during the mortgage bubble.” Yes, that will certainly help stimulate loan making. The editors argue that banks should be pressed to modify mortgages since “they make more by foreclosing rather than by modifying troubled loans.” This is simply not true. Banks generally lose twenty to thirty percent of a mortgage’s value through foreclosure – it is absolutely the last resort.
The Obama administration has made a complete hash out of providing complex short-term programs intended to help underwater homeowners. None has helped. They would do much better to stand aside, let the prices of homes fall to a clearing level and allow the banks to work with credible mortgage holders who could benefit from loan modifications. Today, far too many homeowners are hanging on for dear life, expecting the federal government to bail them out.
“Regulating the banks” is supposed to be another growth mechanism. It is not. The banks are so rattled by the maze established by Dodd Frank that they are overly cautious. They face increased capital requirements through Fed action or Basle III; they are desperately trying to sell assets to meet new standards. This is deflationary -- the NYT (like Europe’s regulators) is fighting the last war.
“Raising taxes” on the wealthy. This is of course the nut of the great debate that has consumed Washington this year. The age-old concept that raising taxes is a mistake in a recession has been tossed overboard – hiking levies on wealthy people apparently is acceptable. It’s an odd theory when high earners are the ones propping up demand at the moment. In any event, it would seem an inefficient way of helping the middle class.
This is, in sum, the proposals that the Times sees brightening the prospects of the middle class. It is a dark vision, and explains the gloom hanging over the country. Let us hope that next year we elect a candidate that brings the sun from behind the clouds, that can envision a country growing and prospering – at all income levels. That has been our history, and it is our future.