The first presidential debate of the general election is tomorrow night, and the one topic that will almost surely dominate the evening is the economy. We’re not holding out a ton of hope Stephen Barton’s demand for gun control will come up—but as long as the candidates will discuss the economy, we should take a good look at what’s actually happening with the economy and how the candidates will try to frame it.
Mitt Romney will argue that taxes must be lowered, especially on the rich and corporations, who are currently being constrained by high taxes, so that with all the money they save they will hire more workers and the money will trickle down, benefitting the whole economy. Obama will argue that we should “continue” growing a strong middle class by keeping taxes low for the middle, while allowing it to increase slightly for the rich.
Both of these arguments are built on false assumptions—that the middle class has been growing, and that the rich are being constrained by taxes.
A new study from Bloomberg shows that the middle class is actually shrinking (much like Arctic ice caps that won’t get discussed tomorrow night) and that top wealth tier in the country is taking off to new levels of the stratosphere, doing better than ever before.
In 2010 the richest top 1% took home fully 93% of the income gains. Last year, the 1.2 million households comprising the top 1% increased their earnings 5.5%, while earnings fell 1.7% for the 96 million households making up the bottom 80%. Income inequality has hit its highest point in 45 years. The Gini coefficient, a number calculated by the UN to predict income inequality levels that often accompanies social unrest when over .40, reached .47 in the US for the first time last year since 1967. The number “surpass[ed] income inequality previously reported in Uganda and Kazakhstan,” according to Bloomberg.
The point for Romney is: We’re already trying trickle down economics. Taxes on the wealthy are lower than they were during the Reagan and Clinton administrations. We’ve got the trickle-down knob set to 11—and the money is not trickling down. It’s doing just the opposite. It’s all accumulating at the top.
The point for Obama is: The middle class is not growing—it’s shrinking, as more unemployed people drop out of the workforce and fall into poverty. Real income in the middle class is shrinking. 11% of middle class households own stocks now—14% did in 2007.
As Nobel Prize-winning economist Joseph Stiglitz told Bloomberg, “We’re all in the same boat. If our economy doesn’t go well, the 1 percent will suffer.” Of course, it may take a while for that to happen. And by that point it will have been far to late to avoid a “lost decade” or a “lost generation.”