Decent Economic Growth Hides The Increasing Gap Between the Rich and Everyone Else

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This past week a bit of good economic news was overshadowed by phony outrage by Republicans bemoaning President Obama’s use of executive orders as well as the preponderance of evidence that New Jersey governor Chris Christie’s criminality is tarnishing his image as Republican’s savior du jour. The government released a report that showed that consumers fueled solid economic growth in the final quarter of 2013 that may seem like wonderful news, but it also exposed exactly what real economists warned Republicans their love affair with deep austerity and devotion to widening the income gap between the rich and the rest of the population would produce. However, a better than expected economic report cannot be overlooked and it is curious why Republicans or Democrats failed to use the economic report for propaganda.

According to some financial experts, the outlook for the economy brightened after the government said growth reached a 3.2% rate during the final quarter of 2013 on the strength of the strongest consumer spending in three years. The chief economist at Mesirow Financial, Diane Swonk, said “The economy showed real signs of momentum at the end of 2013. We are better positioned for decent growth for 2014 than we were a year ago.” However, even with solid growth in the fourth quarter, throughout 2013 the economy grew a tepid 1.9 percent, weaker than the 2.8% increase in 2012. The Commerce Department blamed 2013’s slow growth on federal spending cuts that began to take a toll on economic growth early in 2013.

There was another Republican spending cut in government spending last quarter, but it was due to the Republican government shutdown during October the Congressional Budget Office said reduced 4th quarter growth by at least 0.3 of a percentage point. The CBO also said the sequester and austerity measures “shaved 1.5% points of total growth for 2013” and warned it would continue to depress growth over the next nine years the automatic spending cuts stay in place. The bipartisan budget deal reduced the sequester-mandated cuts for two years, but the deal only reduced the automatic cuts by one-third meaning Democrats were somewhat successful in persuading Republicans to accept slightly less destructive austerity. However, the consensus among mainstream economists is that the economy desperately needs the opposite of austerity in the form of much more fiscal stimulus.

Notably, the man who was Ronald Reagan’s Council of Economic Advisers chief, Republican Martin Feldstein, called for more federal spending now to be offset in the future when the economy is stronger.  Feldstein epitomizes what it means to be a fiscal conservative and he wrote that the modest budget agreement will not produce long-term fiscal policy needed to achieve strong income and employment growth. He recommended that President Obama should propose, and Congress should enact, a five-year fiscal package that would move gross domestic product growth above 3% a year by focusing on direct government spending on infrastructure. Feldstein suggested a price tag to exceed $1 trillion over five years to boost the economic growth rate, but teabagger Republicans are stuck on severe austerity and as long as they control Washington, austerity will stay and Americans will slide deeper into poverty regardless a better than expected 4th quarter holiday shopping season that benefitted big business and not the American people.

It is true that stocks are near record highs that is great for the wealthy, and the inventory-stuffed picture of economic growth for the fourth quarter looks promising for 2014, but a study by the Corporation for Enterprise Development (CFED) shows that nearly half of all Americans are living in a state of “persistent economic insecurity” that makes it “difficult to look beyond immediate needs” or plan for anything other than more poverty. In simpler terms, too many Americans barely survive from paycheck to paycheck but that is not the end of the bleak picture.  The CFED calls economically insecure Americans the “liquid asset poor” and its report found that 44% of Americans are living with less than $5,887 in savings for a family of four.

A quick unscientific survey of 10 families yesterday revealed that none of them had any savings and their plight, like the CFED report found, is worse because the Bush-Republican recession ravaged many Americans’ credit scores to the point that 56% of Americans have subprime credit. What that means for more than half the population is that if an emergency like a car repair, hospital visit, or rent increase arises many Americans will be forced to resort to high-interest credit card debt or expensive payday loans that affects more than just lower-income Americans. According to the CFED report, a little over one-quarter of middle-class households fall into the category of “liquid asset poor” and their numbers are growing rapidly.

Geographically, most economically insecure people live in southern in states such as Georgia, Mississippi, Arkansas, and Alabama that have the highest percentage of financially insecure residents. They are also states burdened with the American Legislative Exchange Council’s (ALEC) “right to work” for less laws that are strangling the economic life out of working families and increasing income inequality as corporations and big business reap the rewards of low wages. With Republicans in Congress disinclined to raise the minimum wage, extend unemployment benefits for the long-term unemployed, and reject the President’s calls for job programs or funding infrastructure improvements to create jobs, the economic outlook for 2014 is not nearly as rosy as some economic experts contend.

What the “consumer driven” economic growth report did not explain was how many holiday shoppers increased gift purchases using credit cards, or why the employment report for December was less than incredible. With income declining among a large percentage of Americans, a preponderance of minimum wage jobs, and cuts to social safety nets like food stamps, housing and heating assistance, and millions of Americans losing their unemployment benefits, the fourth quarter economic report may be an aberration that will not carry over to 2014. President Obama is fighting an uphill battle to convince Republicans that income inequality, low wages, and tens-of-millions of Americans living in poverty is hampering real economic recovery where all Americans prosper because they could not care less about most Americans. As long as the wealthy continue benefitting from the President’s economic recovery, Republicans will stay the austerity course that continues retarding growth despite one 4th quarter report that GDP ticked up to 3 percent.

It is important to remember that the Commerce Department, Congressional Budget Office, and every economist not working for the Heritage Foundation predicted austerity would take a toll on economic growth that bore fruit in 2013, but it still predominates Republican economic policy and Americans will continue suffering until austerity is rejected. Of course, Republicans are well aware their austerity is crushing the economic life out of Americans and that their wealthy donors are reaping the benefits of austerity that protects them from tax reform to close loopholes that only the rich benefit from. Closing loopholes would help fund the more than $1 trillion infrastructure improvements called for by fiscal conservative and Republican economic expert Martin Feldstein. However, Republicans are not about to make any moves that help the economy, or millions of Americans struggling with economic insecurity because as long as promising economic reports benefit their wealthy donors exclusively, they will cling to austerity because it kills jobs, increases poverty, and protects the rich.

 

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