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Obama’s War on the Middle Class

Posted By Mark Hendrickson On May 24, 2013 @ 12:30 am In Daily Mailer,FrontPage | 27 Comments

How many times have you heard President Obama express concern for the middle class? More than you can count.  Even his website begins “Learn more about Barack Obama and why he’s fighting for the middle class.”[1]

But if we look at Obama’s actual record rather than his rhetoric, it is plain that the middle class has been one of the leading victims of his presidency.

The decline in median family and median net worth that began during George W. Bush’s presidency has continued under Obama. Citing recent Census Bureau data, the Pew Research Center published data showing that the only one of nine income levels whose net worth increased in the 2009-2011 period was the highest-earning cohort—those earning over $500,000 per year.

Income, too, showed a similar pattern: During Obama’s first term, the wealthiest 20% of households eked out a 2% gain while incomes for the rest fell.[2] Obama may talk tough about “the rich,” but they have been the only group that have gotten richer on his watch.

Further evidence of Obama’s silent war on the middle class is the explosion in the number of Americans receiving food stamps. When Obama took office in January 2009, there were approximately 32 million Americans on food stamps; as of April 5, 2013, that numbered had swollen by nearly 50% to 47.3 million.[3] Poor Americans already had been receiving food stamps before Obama became president; the increase came from members of the middle-class Americans that his policies had initiated into hard times.

Another dramatic indicator of economic hardship has been the unprecedented increase in the number of Americans receiving federal disability payments—8.8 million, a 19% increase in only four years. Working conditions haven’t become more dangerous;  the disturbing rise in these numbers means that many  have found it easier to get on disability than to get a job. The 1.4 million net increase in disability enrollments is five times greater than the growth in net jobs during the same period—a meager 291,000 jobs.[4]

Lowering The Economic Hammer

The three primary sources of income in a market economy are labor, investment and entrepreneurial business startups. All three have fared poorly under Obama’s policies.

Investment Income

Millions of middle-class Americans, especially seniors, prefer to stick to safe, ultralow-risk interest-paying investments, such a savings accounts, interest-earning checking accounts, money-market accounts, and certificates of deposit. A normal market rate of return on such investments would be around 3%, but today’s savers have been zeroed out by  the Federal Reserve’s “Zero Interest-Rate Policy.”[5]

Obama’s extraordinary increase in federal spending is the culprit. His big-spending policies far exceeded federal revenues, so they had to be financed by borrowing. The massive amount of new debt that was incurred was beyond the capacity of capital markets to finance at interest rates low enough for the federal treasury to afford. Fed Chairman Ben Bernanke became Obama’s compliant accomplice, essentially bailing out the treasury by employing extraordinary measures (the series of “quantitative easing” programs) to cram interest rates down to near zero. In doing so, Bernanke deprived millions of Americans of the option of earning safe interest income. The Fed has rigged the markets so that middle-class seniors who want the safety of U.S. Treasury debt instruments are losing income while, in effect, granting virtually interest-free loans to the federal government.

Entrepreneurial Income

Obama’s policies have had a dampening effect on business startups—foundation for the middle class. Citing a study by the Ewing Marion Kauffman Foundation, which specializes in studying startups, respected social scientist Joel Kotkin writes, “…today fewer than 8% of U.S. companies are five years old or younger, down from between 12% and 13% in the early 1980s, another period following a deep recession.”[6]

There are several reasons for the sluggishness in small business startups, but one of the central ones is been the administration’s heavy-handed regulatory practices. The Mercatus Center, which maintains a database of federal regulations, tabulated an average of 17,212 regulatory rules and restrictions added per year by Obama, compared to 13,441 per year under George W. Bush.[7]

Obama’s second term will see even more new regulations—and therefore more trouble for the middle class– as his administration proceeds to implement the most significant, complex laws passed during Obama’s first term—the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Patient Protection and Affordable Care Act (Obamacare).  Both of these pieces of legislation will remove people from the middle class and make it harder for those trying to climb the economic ladder to reach this rung.

Labor Income

The official unemployment rate has fallen at historically slow post-recession rates under Obama. At the end of April 2013, according to the Bureau of Labor Statistics, the rate was 7.5%—the lowest it has been since he became president.

On the surface, it might seem that this statistic points to an increasingly healthy job market. But Investor’s Business Daily reports, “The average workweek in April was 2% shorter than it was a year ago, marking the ‘steepest decline since 1980.’” Employers are reducing the number of hours they employ workers to avoid incurring the heavy costs of impending ObamaCare rules.[8]

The participation rate of the US labor force is lower than it has been in decades–63.30% as of April 30, 2013. This rate has been declining, counter-intuitively, in lockstep with the official unemployment rate.[9] This means that the middle class is not only having a hard time finding jobs, but even giving up on the prospect of employment.

More than half of Americans under age 25 holding a bachelor’s degree are either unemployed or underemployed.[10]

Economic statistician John Williams, who maintains the well-known Shadowstats website, pegs the actual unemployment rate at the end of April 2013 at 23.0%.[11]

Obama channeled millions of stimulus dollars to increase employment for such favored constituencies as teachers, construction workers, and federal employees in his first two years without significantly reducing unemployment. The economic explanation is this: When a job exists (or earns as much as it does) only because of a government subsidy, then the job is costing more than the value it is producing. This imposes a net loss on society, and the wealth that is diverted from the private sector reduces its ability to create and sustain economically viable jobs.

Is the Obama-Caused Economic Weakness Intentional?

Was this Obama’s goal? Either he didn’t understand that his policies would be so detrimental, in which case he is economically illiterate and incompetent, or he knew what he was doing and was willing to sacrifice the middle class to achieve his overall goals. I think the latter is the case.

Signs of Antipathy

Five days before the 2008 election, Obama told a crowd of his supporters that “we” were on the verge of “fundamentally transforming” the country. Since the American system was designed to maximize economic opportunities and the standards of living, middle-class Americans might well wonder why Obama wanted to fundamentally change it.

Obama revealed his antipathy for middle-class values in the 2008 presidential campaign when he spoke contemptuously of Americans who cling to guns and religion. For 20 years, he attended Rev. Jeremiah Wright’s church where the message from the pulpit was a vehement “God damn America!”

It is well known that Obama is a disciple and practitioner of the strategy and tactics of the late revolutionary Saul Alinsky, who despised the middle class, denigrating them as “materialistic, decadent, bourgeois, degenerate, imperialistic, war-mongering, brutalized and corrupt.”[12]

Obama repeatedly displayed his disrespect for the middle class in his policy approach to the deflating housing bubble he inherited. His proposals to bail-out underwater mortgage holders—many of whom had put little or no money down on their houses—was blatantly unfair to the tens of millions of middle-class Americans who had faithfully made the monthly mortgage payments for ten, twenty, or thirty years, and to those who had deferred Hawaiian vacations, new cars, and other enjoyments to save for large down payments on their houses. Obama pushed for bailouts not only to rich Wall Street firms, but to homeowners whose adjustable-rate mortgages had been reset higher—hardly fair to more financially prudent middle class Americans who had bitten the bullet and locked in fixed-rate mortgages that initially (and potentially permanently) were at higher interest rates than those who took out ARMs.[13]

The Green Agenda

President Obama is what I call a “mean green.” Like the radical environmentalists, he objects to the American middle class’s standard of living. He disapproves of Americans living comfortably when there are poor nations in the world. In his words: “We can’t drive our SUVs and, you know, eat as much as we want and keep our homes, you know, 72 degrees at all times…and then just expect that every other country is going to say OK…[when we] keep using 25 percent of the world’s energy.”

That explains why Obama chose Dr. Steven Chu to be Secretary of Energy for his first term. Chu’s most famous policy goal was encapsulated in his statement, “Somehow we have to figure out a way to boost the price of gasoline to the levels in Europe.” Well, Chu didn’t succeed fully, but the price of gasoline is approximately double what it was at the outset of the Obama presidency.

Chicagoland Politics and the “Curley Effect”

Chicago politicians are known for being particularly ruthless in their pursuit of political power. They play hardball. Their goal is to demolish their competition and forge a permanent majority. It hardly seems surprising, then, that Barack Obama is doing his best to take the Curley effect, historically an urban phenomenon, nationwide.

As defined by Harvard scholars Edward L. Glaeser and Andrei Shleifer in a famous 2002 article, the Curley effect (named after its prototype, James Michael Curley, a four-time mayor of Boston in the first half of the 20th century) is a political strategy of “increasing the relative size of one’s political base through distortionary, wealth-reducing policies.”  Translation: A politician or a political party can achieve long-term dominance by tipping the balance of votes in their direction through the implementation of policies that reward their political allies and punish their opponents, even if the overall result is economic decline. Yes, strange as it seems, making a city poorer often increases the power of those who engineer that impoverishment.

Here is how the Curley effect works: Politicians adopt policies that bestow tax-financed favors on various special interest groups—welfare constituencies, unions, the public sector in general, and select corporations. In demonstration of George Bernard Shaw’s astute axiom, “The government that robs Peter to pay Paul can always count on the support of Paul,” the recipients of those favors and handouts loyally support their political patrons, giving them reliable electoral support in the form of votes, campaign contributions, get-out-the-vote drives, etc.

Meanwhile, those segments of the population who bear the economic burden of supporting the favored special interests often flee. This reduces the number of political opponents on the city’s voter registration rolls, thereby tilting the electoral balance and making it more likely that the political party running the wealth redistribution scheme stays in power. So successful has this strategy been for Democrats that they have retained uninterrupted control of many large American cities for decades, and in the more extreme cases, have created virtual one-party fiefdoms.

Perhaps you have seen the chain e-mail listing the ten poorest US cities with a population of at least 250,000: Detroit, Buffalo, Cincinnati, Cleveland, Miami, St. Louis, El Paso, Milwaukee, Philadelphia, and Newark. Besides all having poverty rates between 24% and 32% and a vanishing middle class, these cities share a common political factor: Only two have had a Republican mayor since 1961, and those two (Cincy and Cleveland) haven’t had one since the 1980s. Democratic mayors have had a lock on City Hall despite these once-great and prosperous cities stagnating on their watch. This is the Curley effect in action.

The strategic mistake of the Democratic leaders of those poor cities have adopted policies so virulently anti-business that they have hollowed out the economic base of the city and caused stagnation, decline, and bankruptcy.

Obama is trying to achieve the Curley effect nationwide. He is striving to forge a political coalition that will give the Democrats a permanent electoral majority. He has adopted a two-pronged strategy. On the one hand, he has done everything he could to strengthen Democratic constituencies (e.g., stimulus spending steered predominantly toward unions and strategically allied state and municipal entities; waivers from Obamacare for unions; continual increases in the Index of Dependence on Government during Obama’s presidency);[14] on the other, he has endeavored to weaken Republican constituencies by strengthening alliances with Big Business while making things difficult for small businesses, because the latter are “a building-block of the Republican base.”[15]

If Obama and his fellow progressives succeed in achieving the Curley effect on the national level, Americans will no longer be able to move to a new city or state to escape the withering economic impact of Curley-style politics. Their only option would be to leave the country.  However, it appears that Obama has anticipated that response. To close the escape hatch from an Obama-led, Curley-effect America, the president has signed the Foreign Account Tax Compliance Act that mandates closer monitoring of Americans’ offshore accounts. He also seems to favor policies that would impose financial penalties on anyone desiring to give up U.S. citizenship, and he has called for “global minimum taxes.”[16]

An Enduring Crisis of the Middle Class

Obama’s policies are enlarging the twin millstones around the neck of the middle class– taxation and inflation. While it is true that income tax rates haven’t yet risen under Obama and inflation has surfaced only in a few areas (e.g., food and energy) these twin curses are quietly gathering strength for a future whirlwind of destruction. The six trillion dollars of new debt resulting from Obama’s spending binge (plus trillions more of accumulated unfunded federal liabilities) are tax hikes on future taxpayers. As mentioned earlier, the costs of this flood of red ink has been obscured by the Fed’s Zero Interest Rate Policy and its willingness to buy approximately 60% of new federal debt with newly created dollars. Whenever ZIRP ends, some combination of massive tax hikes and/or raging inflation will ensue. .

Already, Obama’s economic policies have hurt the middle class. They have sapped the job market, raised food and energy bills, and resulted in falling incomes and net worth. Now the table is set for additional economic pain in the future.

A contracting middle class in retreat from the optimism and affluence that have always been its hallmark is, at this stage of his presidency, Barack Obama’s legacy.

Notes:


[1] www.barackobama.com/about/barack-obama/ accessed May 5, 2013.

[2] Obamanomics: Rich Get Richer, Everyone Else Poorer,” (unsigned editorial) Investors Business Daily, Posted 04/24/2013 6:69 PM ET. news.investors.com/ibd-editorials/042413-653244-rich-get-richer-poor-poorer-under-obama.htm

[3] Matt Trivisonno’s blog, accessed May 5, 2013; www.trivisonno.com/food-stamps-charts

[4] John Merline, “Nearly 90,000 Apply for Disability, December Record,” posgted 12/21/12 01:19 PM ETnews.investors.com/122112-637978-disability-ranks-continue-to-explode-under-obama.htm?p=full

[5] Mark W. Hendrickson, “We’ve Been ZIRPed,” Grove City PA: The Center for Vision & Values, October 12, 2011; www.visionandvalues.org/2011/10/we-ve-been-zirped/

[6] www.forbes.com/sites/joelkotkin/2013/03/13/wall-streets-hollow-boom-with-small-business-and-startups-lagging-employment-wont-pick-up/

[7] Joseph Lawler, “President Obama Leads in Regulations Issued,” posted on realclearpolicy.com on November 2, 2012; www.realclearpolicy.com/blog/2012/11/02/president_obama_leads_in_regulations_issued_338.html

[8] “The ObamaCare Train Wreck Is Already Here,” IBD Editorial, posted May 6, 2013 07:18 PM ET; news.investors.com/ibd-editorials/050613-655037-the-obamacare-train-wreck-is-already-here.htm?p=full

[9] data.bls.gov/timeseries/LNS11300000; cf. “US Labor Force Participation Rate,” ycharts.com/indicators/labor_force_participation_rate

[10] Mark Hendrickson, “Myth-Busting 101,” posted on forbes.com August 16, 2012; www.forbes.com/sites/markhendrickson/2012/08/16/mythbusting-101-uncomfortable-truths-your-college-wont-tell-you/

[11] Bill Quick, A Reality Check from Shadowstats.com, posted on dailypundit.com, May 3, 2013; www.dailypundit.com/?p=71610

[12] Saul Alisky, Rules for Radicals, p. 185, quoted in James R. Keena, We’ve Been Had, Nahsville TN: Twin Creek Books, 2010, p. 68.

[13] Mark W. Hendrickson, “Tough Times for Wise Virgins,” Grove City: The Center for Vision & Values, posted February 18, 2009; www.visionandvalues.org/2009/02/tough-times-for-wise-virgins/

[14] Patrick Tyrrell, “Index of Dependence on Government Jumps for the Fourth Year in a Row,” posted on “The Foundry,” a Heritage Foundation blog Sept. 18, 2012; blog.heritage.org/2012/09/18/index-of-dependence-on-government-jumps-for-the-fourth-year-in-a-row/

[15] Kotkin, “Wall Street’s Hollow Boom.”

[16] Mark Hendrickson, “Team Obama: Tax Predators On The Prowl,” posted on forbes.com, 4/19/2012 @ 5:45PM; www.forbes.com/sites/realspin/2012/04/19/team-obama-tax-predators-on-the-prowl/

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