The American middle class, like the American economy in general, is ailing. Labor-force participation has hit a 35-year low.
Median household income is lower than it was five years ago. Only the top 5 percent of households have seen their incomes rise under President Obama.
Meanwhile, the country is still running near-record budget deficits and is burdened by $17 trillion in aggregate debt. Yet the stock market is soaring.
How can we make sense of all this contradictory nonsense? Irony.
Obama promised to restore the middle class. In truth, he has enacted the very policies that have done it the most damage in years. That paradox may explain why his base of support remains the very rich and the very poor. Goldman Sachs, federal bureaucrats, and aid recipients are helped in a way that the strapped hardware-store owner, Starbucks barista, and part-time welder are not.
For all the talk of infrastructure or stimulus, the latest $6 trillion in federal borrowing seems to have been wasted on bailing out insider banks and green companies, growing the federal work force, regulating the private sector into stasis, and subsidizing those who are not working.
The Federal Reserve still keeps interest rates at near zero. That mostly helps Wall Street, where money flows madly in search of any sort of return.
Most real interest rates for consumer purchases somehow remain exorbitant. Banks obtain their money cheaply and lend it out expensively. No wonder that so many Wall Street and banking executives — Timothy Geithner, Jack Lew, Peter Orszag, Gene Sperling, Larry Summers — revolve in and out of the highest levels of this “no revolving door” administration.
Middle-class workers see little chance of retiring when their meager savings earn almost no interest, so they are apt to stay on the job longer. Their continuance only makes unemployment rates for young entry-level workers even worse.
Obama always threatened higher taxes on the well-off. He achieved that goal with a new 39.6 percent federal rate on upper incomes, a rate paid on top of state and payroll taxes. Yet such steep taxes do not much affect the super-rich. Their income is often exempted through sophisticated tax avoidance or, more often, earned through lower-taxed capital gains.
Small employers in many states have no such recourse and now pay more than half their incomes in assorted federal, state, and local taxes. Naturally, they are hiring fewer people and making fewer capital investments.
That greater tax hit might have been worth it had the new rates been part of a balanced-budget agreement like the Bill Clinton–Newt Gingrich deal of 1997, which froze spending levels and, for a time, stopped our ruinous borrowing.
Not this time. We end up with the worst of all worlds: once again a 39 percent top tax rate, but now with out-of-control federal spending and more multibillion-dollar budget deficits.
By virtually shutting down gas and oil leases on federal lands, the administration has declined the chance to create millions of new energy jobs and to lower fuel prices. For now, lower power bills and gasoline prices, and the creation of more jobs in energy, depend entirely on those who drill on private lands — despite, not because of, federal efforts.
Even the many sires of Obamacare now deny their paternity. Unions want out of it. Congress demands exclusion from it. Well-connected businesses won exemption from it.
The poor, who mostly do not pay federal income taxes, will get a largely free, bureaucratized federal health-care system. Many of the rich praise Obamacare but will quietly use their own money to avoid it. The middle class will see their premiums soar and the quality of their coverage erode.
These are surreal times. Wealthy elites who help to shut down jobs in energy, timber, and mining are deemed liberal — but not always so the middle classes, who suffer the consequences in lost jobs and higher prices.
Universities voice progressive bromides, but they care mostly for the tenured and the technocrat, not the part-time lecturer and the indebted student. Thanks to soaring tuition, campus is now the haunt of the very wealthy, who can afford it, and the very poor, who are often exempted from it. The less romantic middle class goes $1 trillion into debt for high-interest student loans.
Never has it been so good to be invested in a vastly expanding federal government — either to distribute or to receive federal subsidies. Never has it been so lucrative to work in banking or on Wall Street. And never has it been so bad to try to find a decent job making something real.
To paraphrase the Roman historian Tacitus, where we have made a desert of the middle class, we call it a recovery.
— Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University. His latest book is The Savior Generals, published this spring by Bloomsbury Books. You can reach him by e-mailing [email protected]. © 2013 Tribune Media Services, Inc.