Saturday, July 12, 2014

ObamaCare and the Middle Class

That which in England we call the middle class in America is virtually the nation.

Inequality has the natural and unnecessary effect, under the present circumstances, of materializing our upper class, vulgarizing our middle class, and brutalizing the lower class.

Matthew Arnold (1822-1888), A Word About America and Mixed Essays

America is a middle-class, politically center-of-the-road nation.

Under President Obama, in the first 5 ½ years of his presidency, that political equation has changed – with the upper class rising, the middle class sinking, and lower class drifting downward with over 20% unemployment rates.

A recent Russell Sage Foundation study suggests these inequality patterns, have become worse in the post-Recession Obama years.
In 2013 , wealth of those at the 90th and 95th percentiles was higher than 10 years ago. Everyone else is lower (Fabian Pfeffer et, “Wealth Levels , Wealth Inequality , and Great Recession," June, 2014).

Most new jobs are low wage or part time. They aren’t providing the impetus the economy got in the last, more broad-based expansion from robust consumer spending. The middle class make up most consumers, and they have less money to spend, with their incomes dropping by 10%.

Wage growth has gone up weakly, 2.5% annually since 2009, compared with a 4.3% annual rise from 2001 to 2007. Consumer spending, which makes up 70% of the economy, has expanded only 2.2% since the recession ended, far less than the 3% advance in the prior expansion.

Many working-age people sit on the sidelines . Labor force participation rate remains the lowest since 1979.

People in marginal or part-time jobs do not drive consumer spending. The upper class is spending the money . Since 1992 the top 5% of households have increased their share of total spending to 40%, up from 27% in 1992. ( Joel Klotkin, “There Will Be No Real Recovery Without the Middle Class,” July 10, Forbes).

According to Klotkin, “Over the last five years, Wall Street and the investor class have been on a bull run, but the economy has been, at best, torpid for the vast majority of the population. Despite blather about our “democratic capitalism,” stock ownership is increasingly concentrated with the wealthy as the middle class retrenches. The big returns that hedge funds, real estate trusts or venture capitalist receive are simply outside the reach of the vast majority.”

Last year some two-thirds of Americans polled by the Washington Post and the Miller Center said life had become tougher over the last five years compared to just 7% who thought their lifes had improved. Pollsters also have found almost two-thirds of parents felt their children would do worse in life.

In previous recoveries, small businesses have provided much of the spark and job creation. Small business start-ups have declined as a portion of all business growth from 50% in the early 1980s to 35% in 2010, while its share of employment dropped down from 20% to 12%.

A 2014 Brookings report revealed small business “dynamism,” measured by the growth of new firms compared with the closing of older ones, has declined significantly over the past decade, with more firms closing than starting for the first time in a quarter century. (Brookings, “Declining Business Dynamism in the United States, May, 2014).

What does the middle and small business decline have to do with ObamaCare? Plenty. Middle class voters vote, and lower class voters, the guts of the Democratic base, vote in smaller numbers. Although ObamaCare has decreased the number of uninsured to 13.5%, compared to 15% before its inception, premiums and deductibles have exploded in many markets, especially in the individual and small group and markets dominated by young healthy voters.

The Middle Class is feeling isolated and bereft, left out of ObamaCare, and its voters, which include most Americans, may reflect these feelings in the November midterms. The middle class may rise up and smite down its distractors.

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