Destruction of American Middle Class Possible Within a Decade

Wes Riddle’s Horse Sense #440

Destruction of American Middle Class Possible Within a Decade

A new book by Tom Pauken, Bringing America Home (Rockford, Illinois: Chronicles Press, 2010) covers many varied topics ranging from the economy and foreign policy, to politics and culture. As the book’s sub-title, How America Lost Her Way and How We Can Find Our Way Back suggests, it offers a veritable platform for guiding these United States back safely as it were, through crisis and challenges, by implementing a series of common sense and traditional conservative policies. One chapter in particular makes the book entirely worthwhile, even if one reads nothing else. Namely, Chapter 5 details the ongoing destruction of the American Middle Class through both poorly devised economic policies and outright failure of political leadership in Washington.

Unlike many on the Republican side, Pauken is not a mouthpiece for big business or the corporate elite. His sentiments are with populist Main Street, admitting what many liberals have sounded from the hills for quite some time, that the rich are indeed getting richer while the Middle Class grows poor. His solution is not a resort to socialism or to government takeover, however, but a return to free market capitalism and to limited constitutional government run in the interest of Americans. Pauken explains that what has caused existential inequality, as well as the hardship on the Middle Class is not free market capitalism but a corrupted form or crony capitalism. It is the self-serving alliance between Big Government and Big Business, and between the corresponding drives for both power and profit.

Pauken is highly critical of the lack of business ethics and humanity evinced by modern American business practice. Some in business at the highest levels of management raid their own corporate assets for personal gain and pass off the wreckage to others. Similar behavior gave rise to the recent housing bubble that burst and to instability in what amounts to a “bubble economy,” with originators of loans and mortgages deliberately and sometimes deceitfully evading responsibility for risky financial behavior. The business culture in this respect mirrors a decline in standards of morality throughout the broader culture. For all the obscene bonuses and exploitive practices on Wall Street, however, these do not explain why manufacturing jobs have left or why real income for the Middle Class has shrunk.

According to Pauken, “A central reason for…[the] huge trade deficits and the shift of economic power from Main Street to Wall Street is a business tax system that gives private-equity moguls incentives to take such risks with the companies they control.” They have an advantage over U.S. company owners who might otherwise run businesses in a conservative fashion. Simply stated, business debt is encouraged because it can be written off on taxes, whereas the 35% corporate tax rate discourages business savings and investment. Except for the U.S., every major trading country in the world provides tax advantages for domestic manufacturers. Information technology companies are outsourcing now at an alarming rate for a similar reason.

Moreover, U.S. goods shipped overseas carry an average added 18% tax burden compared with most foreign competitors, and this keeps trade deficits widening every year. According to Warren Buffet, the trade deficit is possibly of greater worry than the budget deficit or consumer debt burden near-term, because we have to borrow from other countries to finance it. The annual account deficit is now more than $800 billion. The politically chic idea that the U.S. would somehow sustain its quality of life for the Middle Class while giving up its manufacturing base and transforming into the world’s premier ‘knowledge-based economy’ was a sheer fantasy. The competitive global environment and rampant trend towards American outsourcing has gone on unabated and continues, while elective politicians mouth empty promises and defend a principle of “free trade” amidst the uneven playing field and structural disadvantages created by America’s own stupid business tax system.

Americans are clinging to their Middle Class status, living paycheck to paycheck, mired in consumer debt and finding it difficult to find good jobs or to work the requisite number of hours needed to pay their bills. Meanwhile Pauken says, “We are passing out money we do not have through a Keynesian stimulus package designed to revive the economy.” Moody’s has declared the United States runs the risk of losing its triple-A credit rating within a decade if the federal government does not bring soaring levels of spending down. Imagine what this will mean if the U.S. has to finance its debt at dramatically higher interest rates owing to the loss of most favored bond rating status!

In part it was this sobering recognition, which led Jim Bunning (R-KY) to bravely though ineffectually remind his colleagues in the Senate that even unemployment benefits have to be paid for. Lawmakers couldn’t find the $10 billion to do so. The annual budget deficit is running $1.35 trillion this year, and the national debt topped $12 trillion and is set to double in less than ten years—and when it does the U.S. will lose its triple-A credit rating. One economist remarked that America today resembles less the developed economic superpower we have come to think of, and more like something of an emerging market having both a weak currency and huge deficits. America is headed for the perfect economic storm, as well as destruction of its vaunted Middle Class inside the decade unless we reverse track resolutely and swiftly.