South By North Strategies, Ltd.

The Future Of The Middle Class

Writing in The American Prospect, Jeff Faux asks, “Who will save the middle class?”

After three decades of policies that have undermined the country’s global competitiveness and the bargaining position of its workers, the United States economy can no longer provide the means to support its three most politically important American dreams: Wall Street’s dream of subsidized limitless profits; the military-industrial complex’s dream of global supremacy; and the middle class’s dream of rising incomes.
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One out of three? Certainly. Two out of three? Perhaps. All three? No way.
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The deal is done. The middle class will be sacrificed. The partisan disagreement is now over the details: how much pain there will be and how fast it will come.

Around The Dial – June 18, 2012

Economic policy reports, blog postings, and media stories of interest:

• The Progressive Pulse consider new wealth data.
• Off the Charts lays out the stakes in the pending health reform ruling.
• Free Exchange reviews the economics of the Marshall Plan.
• Policy Shop looks at budget cuts to public higher education.
• The Economic Policy Institute explains the range of “middle class” incomes.

“We Are All Still Keynesians”

John Cassidy of The New Yorker blogs that “we are all still Keynesians.”

In the real world that rarely intrudes upon conservative economists and voters, both parties (and all Presidents) are Keynesians. Whenever the economy falters and private-sector spending declines, they use the tax-and-spending system to inject more demand into the economy. In 1981, Ronald Reagan did precisely this, slashing taxes and increasing defense spending. Between 2001 and 2003, George W. Bush followed the same script, introducing three sets of tax cuts and starting two wars. In February, 2009, Barack Obama introduced his stimulus. The real policy debate isn’t about Keynesianism versus the free market, it is about magnitudes and techniques: How much stimulus is necessary? And how should it be divided between government spending and tax cuts?
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On both questions, Obama took the middle ground. His $800 billion stimulus program was smaller than many Keynesians, such as Christine Romer and Paul Krugman, wanted. (Romer reportedly pushed first for a $1.8 trillion package, then for $1.2 trillion.) Concentrated over a three-year period, it amounted to 1.1 per cent of G.D.P. in 2009, 2.4 per cent of G.D.P. in 2010, and 1.2 per cent of G.D.P. in 2011. So far, some $750 billion in stimulus money has been paid out: about $300 billion went to tax breaks for individuals and firms; roughly $235 billion was dispersed in the form of government contracts, grants, and loans; and another $225 billion was spent on entitlements—unemployment benefits, Medicaid, food stamps, and so on.

Financial Aid And Tuition Increases

Jared Bernstein looks at the claim that federal financial aid causes college tuition to rise.

Research shows that tuitions at the public universities, where 75% of students enroll, are very much a function of revenue flows.  Thus, when they hit recession—and remember, states must balance their budgets—a couple of unfortunate things tend to happen at the same time.  First, tuitions tend to rise, and second, with the increase in unemployment, more young adults decide that given the weak job market, this would be a good time to get some more education.  (Another interesting strain of research finds that increased state Medicaid costs has also led to higher tuition at public universities.)
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So that’s when you’d actually want to ratchet up Federal aid, which is in fact what the Obama administration did with the American Opportunity Tax Credit and significant increase in Pell grants.
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Conservatives who oppose these measures often complain that they don’t really lower tuitions because they’re directly capitalized into the price, but in the majority of cases, that’s wrong (Rep Paul Ryan goes after Pells particularly aggressively).   We might well want to exclude those institutions that abuse federal aid from the programs that grant them, but they are a minority.  If we want less advantaged kids to have a fair shake at getting to and getting through college, these aid programs are essential.

Around The Dial – June 15, 2012

Economic policy reports, blog postings, and media stories of interest:

• Felix Salmon notes the importance of Social Security.
• Harold Meyerson looks at the role of unions.
• Wonkblog looks at accuracy in Food Stamp payments.
• Barry Eichengreen argues for “work sharing” policies.