Smart Bombs: The middle class is spent

To listen to some of the solutions to our moribund economy, you’d think that back in fall 2008 employers were suddenly hit with a wave of taxes and regulations that forced them to lay off workers. At the same time, many workers must’ve left of their own accord and are subsequently enjoying their jobless selves, what with those “cushy” checks they receive from “unemployment assurance.”

Hence the calls to cut taxes, repeal regulations and turn off the spigot of jobless benefits (among other areas of government spending), so that job creators who are yearning to breathe free can finally exhale and start hiring folks. If these are truly the barriers to job creation, you have to wonder how the unemployment rate was so low before the Great Recession.

So what really changed? It’s not that complicated. It happened just a couple of years ago. It was in all the papers.

An economy held aloft by a housing bubble, consumer debt and the leveraging of both suddenly crashed. Consumers freaked. As a result, demand slackened for the products and services that job creators supply, and workers were laid off. This hangover continues today.

Derek Thompson, an editor at the Atlantic, posted a simple graphic on the magazine’s website that tells the tale. Here is his pithy observation:

“In May 2008, six months after the Great Recession set in, a typical family earning less than $90,000 a year spent $105 daily. One year later, in May 2009, they spent $59 a day. Then in May 2010, they spent $59 a day. In May 2011, they also spent $59 a day.”

So then why are so many solutions focused on the supply side of the equation, instead of that $59 rut? It’s not as if people have piles of money but just can’t find anything of interest to purchase. Put another way, why would a job creator launch a business and start hiring when the consumer trend is so steadily woeful? That’s not to say that it’s nutty to start a new business or to expand, but the money spent at a new venture will be money that isn’t spent elsewhere.

Call me crazy, but my theory for why spending has plunged to such a low level is that middle-class folks have less money and aren’t all that thrilled about returning to debt-fueled shopping sprees. If all of the top-down economic policies of the past 30 years had fulfilled the egalitarian promise of lifting the tide, this could’ve been avoided.

Instead, the middle class is struggling to remain afloat, but the federal solution is to continue tossing life preservers to those on shore.

Strategic pessimism? One way to shrink government spending is to say you won’t have the money. Idaho provides an apt example.

Like in all states, the governor and legislators base their budgeting decisions on revenue projections. Typically, budget writers take their cues from the state’s chief economist, who pores over reams of data and comes up with projections. But Gov. Butch Otter and the Legislature rejected the expert opinion of Mike Ferguson, who is now retired, and went with a gloomy guess.

When the final revenue numbers came in for the fiscal year that ended June 30, they exceeded Ferguson’s forecast by $11.5 million. But budget writers were off by a lot more, meaning the state suddenly had an $85.3 million surplus. About $60 million of that will go to schools, but not before the prospect of a much smaller education budget helped fuel the controversial changes pushed by the state schools chief, with the support of the governor.

Otter said none of the Medicaid cuts will be restored, meaning Idaho will also forgo federal matching funds and thousands of people will be left without health coverage.

Former Gov. Cecil Andrus bet Otter $100 that the chief economist’s projection would be more accurate. He was the only winner in this guessing game.

Straight shooting. So a possible budget compromise offered by the bipartisan “Gang of Six,” which spins off the bipartisan deficit reduction commission, is being met with protests by partisans on the left who refuse to budge on entitlement spending and partisans on the right who refuse to budge on increased revenue.

Those are solid indicators that the gang has hit the bull’s-eye.