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Yesterday, Teacherken published a highly recommended diary entitled,"Paul Krugman asks if the election will be honored."  If you haven't done so, I recommend that you read the diary, he did an excellent job summarizing the fiscal arguments of Krugman's article.

The discussion was extremely informative and spirited centering mostly around whether President Obama was a centrist Neoliberal Democrat or a closeted Progressive.  Others argued over the sincerity of Barack Obama's offer to accept a "Grand Bargain."  Is he sincerely attempting "entitlement reform" or is he once again playing 11th dimensional chess?

What was missing from the discussion of the topic of so called "entitlement reform" is a discussion of how policy over the past three decades has left the American middle class in a precarious state and the last thing it needs is to have the Social Security benefits into which so many of have paid be reduced.

During the heyday of the New Deal coalition, wages rose along with productivity gains.  Much of this was due to the fact that almost 33% of the private sector workforce was unionized, and business went along with this arrangement because labor unrest was much more costly than granting pay raises lockstep with productivity.  The social contract could best be summed up with a quote from the New England Council which John F. Kennedy popularized, "A rising tide lifts all boats."

After World War II, the health security of American families were provided through fully funded employee health plans.  Although the United States never had socialized medicine, the federal government was in fact, providing tax incentives for businesses.

Up until approximately 1980, the middle class achieved economic security through this social contract.  Standards of living were doubling every twenty years, and until the Kennedy administration, the median income earner paid no federal income taxes.  Not only were the American middle class wages the highest the world had ever seen, and their lifestyle the envy of the rest of the world, but their retirements were safe, secure, and for American families based upon a much safer footing.  Back then, in lieu of higher wages, the American wage earners deferred some of their compensation into  "defined benefit" pensions which would pay them a definite benefit until their death.

During the era of 1945 to approximately 1975, the federal government was dedicated to providing security through high wages by keeping the labor market tight by pursuing full employment policies, and by enlarging the safety net to spread risk throughout the population and to provide security to traditionally excluded groups.

In the aftermath of the stagflation, or the New York city default crisis, or the energy crisis, the social contract of a full employment, high wages, and a widespread but relatively small welfare state was destroyed in favor of neoliberalism.  The definition is somewhat elastic, but for my purposes it is a removal to the impediments of capital formation through an aggressive market fundamentalism.

The middle class began to lose the benefits of unionization starting with Carter deregulating the trucking industry and accelerating with the PATCO and Hormel Strikes during the Reagan years up to the Scott Walker fiasco and Rahm Emmanuel's rant demanding that striking Chicago Public School teachers be imprisoned for striking.

Along with de-unionization, the policy of the federal government has been to pit American wage earners against the low wage wages of third world poverty and child labor.  Bill Clinton pushed through NAFTA, and retailers such as Wal-mart pressured their suppliers to move production offshore in a quest for "low prices."  At the higher tech end of the spectrum, we have Apple with its Foxcomm factory "problem."  These consequences of these policies have led to the de-industrialization of America and a hollowing out of the middle class.

As Mother Jones magazine has recently shown, the consequence of these policies on the median household are profound.

 Productivity has surged, but income and wages have stagnated for most Americans. If the median household income had kept pace with the economy since 1970, it would now be nearly $92,000, not $50,000.

 I don't know about you, but my life would be a whole lot less stressful with an extra $42,000 a year.  

Where did all that money go?  That's a lot of dough over the course of a working lifetime.

Whereas my father's generation had expanding employer provided healthcare plans with expanding benefit plans, since 1980 businesses have been shedding those plans as a way to diminish their "employee liability" and increase their profits.  They justify this shift onto the backs of ordinary Americans by arguing that it is "unsustainable."  Higher deductibles are demanded.  Although the Walton heirs are multi-billionaires, their employees who are paid so little they often are on state assistance even though working full time, have to pony up a $5,000 deductible if they are lucky enough to have health insurance.  The shift might be bearable except that many employers have eliminated health coverage, or escape the responsibility by employing a high percentage of their workforce as part-time or temporary workers.

Buffeted by stagnant wages and declining employer provided health benefits, the middle class' retirement is at least secure with pensions, 401 k's, Social Security and Medicare, right?

As Jacob S. Hacker has shown in his book, The Great Risk Shift:

— In 1980, more than 80 percent of large and medium-sized corporations offered traditional “defined-benefit” pensions that provide a predetermined monthly benefit for the remainder of a worker’s life. Today, less than a third do. Instead, companies that provide plans now offer “defined-contribution” plans, such as the 401(k), in which returns are neither predictable nor assured.

— Between 1989 and 1998—a decade in which 401(k) coverage exploded and the stock market boomed—the share of families nearing retirement that found themselves likely to live on less than half of their prior income in retirement increased by a third, to more than 40 percent.

— Roughly three-quarters of 401(k) account holders in 2002 had less than the widely cited average of $47,000 in their account. The median among account-holders—which is a better measure of what’s typical—was around $13,000. And all these figures include only those who have 401(k)s. Only 53 percent of workers have access to a defined-contribution pension plan, and only 42 percent contribute to one

— More than $100 billion dollars a year in lost income tax revenues is used to subsidize 401(k)s and other pension plans. Two-thirds of this total goes to the richest 20 percent of Americans, only 12 percent to the bottom 60 percent of Americans on the income ladder.

The situation today is this.  Although Social Security is fully funded for decades.  We have a generation of workers who have had their wages suppressed and therefore have underfunded the Social Security system.  He are still in the throes of a long recession with perhaps 40 million Americas either unemployed or underemployed.  Millions have exhausted their unemployment benefits and are downwardly mobile. This is on the heels of the Bush presidency which oversaw worst job creation Presidency since Herbert Hoover and the destruction of the surplus and having the national debt extinguished by 2010.  People have more health insecurity than two generations ago, and they are unprepared for retirement even if they haven't dipped into their 401 k.

The Beltway solution:  The middle class must accept "entitlement reform."  We have Clinton meeting with Paul Ryan after the special election in New York caught on tape speaking of entitlement reform.  We also had Clinton and Obama mentioning Bowles -Simpson in their Democratic National Convention speeches.  The middle class has already sacrificed enough.  Grandma shouldn't have to eat cat food while the Rich Kids of Instagram post $100,000 bar tabs.  We can't afford "reform."

Where did the fruits of the middle class's labor go?  How does this affect Social Security reform?  How do we hold lame duck politicians accountable?

Ellen Schultz, a former investigative reporter for the Wall Street Journal, published a book last year entitled Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers

  In this book she explains that pension shortfalls are “not a demographic accident. It was manufactured by an alliance of two groups: top executives and their facilitators in the retirement industry—benefits consultants, insurance companies and banks.”

In an interview with Steve Inskeep on NPR she explains:

"The main narrative is that [companies] are struggling to pay both their pensions and these unexpectedly high health care costs for the retirees," Schultz says. "What isn't known is that companies were well-prepared for this phenomenon. The plans were in fact significantly overfunded. They had more than enough to pay every dime for every person currently employed and already retired."
In the early 1990s, Schultz says, companies were looking for new ways to push out workers, especially older, more expensive ones. She says the expensive way would have been to pay severance, "but the cost-effective way was to instead promise them a bit more pension money in lieu of severance." In the end, "you've just laid off somebody who's expensive and it has cost you nothing."
In an interview with Forbes' Steve Denning, Schultz sums up the situation:
The masterminds of this heist should take a bow: They managed to take hundreds of billions of dollars in retirement benefits that were intended for millions of workers and divert them to corporate coffers, shareholders, and their own pockets. And they’re still at it. It might not be possible to resuscitate pension plans, but it isn’t too late to expose the machinations of the retirement industry, which has its tentacles into every type of retirement benefit: profit-sharing plans, 401(k)s, employee stock ownership plans (ESOPs), and plans for public employees, nonprofits, small businesses, and even churches. The retirement industry has exported its tactics, using them to achieve similar outcomes in retirement plans in Canada, Europe, Australia, and elsewhere, and has big plans for Social Security and its overseas equivalents as well. Unless it is reined in, the global retirement industry will continue to capture retirement wealth earned by many to enrich a relative few.
 She goes on in great detail of all the ways corporate America has screwed its human capital.  Get a copy of this book.

The money quote applies to all insurance and pension plans.  

"When you have a properly funded plan, it doesn't matter how many retirees you have or how long they live," Schultz says. "It's not the fact that you have a lot of retirees; it's the fact that you have abused the pension plan."
What has happened to the middle class the last several decades is no accident, it is not the result of impersonal economic or demographic forces.  This was a premeditated atrocity on the America dream.

What are some solutions?  We could simply reverse the policies of the past forty years but that would take too long.

Thomas Geohegan in a New York Times Op-ed argued that we should raise Social Security benefits to 50% of the pre-retirement wages for the median worker.  It's a start.  We need to raise benefits as a matter of justice to offset the vast redistribution of wealth which the last generation of American workers have suffered at the hands of the top one percent.

Lastly, what shall we do to politicians who wish to "reform" Social Security and Medicare entitlements?  One must choose between Democratic principles or being loyal to individual politicians.

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Comment Preferences

  •  Tip Jar (11+ / 0-)

    "The working class mind is strange and unpredictable" -- Ty Lookwell

    by Illinibeatle on Tue Oct 02, 2012 at 08:34:46 AM PDT

  •  Gotta run some errands. Hope you enjoy it. (2+ / 0-)
    Recommended by:
    jessical, Words In Action

    Be back in a few hours.

    "The working class mind is strange and unpredictable" -- Ty Lookwell

    by Illinibeatle on Tue Oct 02, 2012 at 08:36:16 AM PDT

  •  These monikers: "Grand Bargain," "Gang of Six," (1+ / 0-)
    Recommended by:
    Words In Action

    etc. are completely obnoxious.  

    I don't want anyone in Congress "bargaining" on any issue, and I certainly don't want a "gang" doing it, either.    


    If the plutocrats begin the program, we will end it. -- Eugene Debs.

    by livjack on Tue Oct 02, 2012 at 08:51:30 AM PDT

  •  you're living "entitlement reform" (2+ / 0-)
    Recommended by:
    sebastianguy99, Words In Action

    billions in medicare fraud and abuse has been recovered.  medicare advantage took huge hits.  and yet benefits to seniors haven't been reduced, but expanded.

    Die with your boots on. If you're gonna try, well stick around. Gonna cry? Just move along. The truth of all predictions is always in your hands. - Iron Maiden

    by Cedwyn on Tue Oct 02, 2012 at 08:54:38 AM PDT

    •  Some are in denial about the issue (2+ / 0-)
      Recommended by:
      Cedwyn, Illinibeatle

      I think this is an excellent opportunity for Progressives to get out front of an issue instead of staying on the sidelines yelling.

      Let us welcome "reform" our way. I want to see our people in Congress come up and promote our type of solutions. Let us challenge those in the party that none of us trust on the issue.

      I want these programs extended with full benefits. We need to be talking realistically about how we get there.

      "There is nothing more dreadful than the habit of doubt. Doubt separates people. It is a poison that disintegrates friendships and breaks up pleasant relations. It is a thorn that irritates and hurts; it is a sword that kills.".. Buddha

      by sebastianguy99 on Tue Oct 02, 2012 at 10:00:21 AM PDT

      [ Parent ]

  •  Trends (3+ / 0-)

    We have these powerful trends that have been in place for decades now, and we need politicians with a plan to reverse them. Growing income inequality, stagnant wages, and the looming decline in retirement security are prominent among these. You could add climate change, a really worrying trend.

    Ryan and Romney are focused only the deficit, a relatively recent problem largely created by Bush's reckless policies. And they want to "solve" everything else with the artificial constraint that taxes, especially on high earners, must never go up from their current very low level.

  •  Until a proposal is offered.... (0+ / 0-)

    there is no deal.

    There is no Grand Bargain until a Grand Bargain is put on the table.

    Everything else is speculation.

    In other words, the author of this Diary is complaining about something that does not exist.

    •  I think it is pretty probable (1+ / 0-)
      Recommended by:
      Words In Action

      based upon his many statements.  Check out the latest from Americablog this morning.

      "The working class mind is strange and unpredictable" -- Ty Lookwell

      by Illinibeatle on Tue Oct 02, 2012 at 12:22:08 PM PDT

      [ Parent ]

    •  A Grand Bargain already exists, with (0+ / 0-)

      Simpson-Bowles as the basis. The administration and Clinton have been referring to it directly in conjunction with the importance of deficit-reduction.

      The clear indication is that the administration will go into negotiating the Grand Bargain the moment the election is over, with the fiscal cliff as both a bargaining chip and motivating factor.

      Purging predominantly minority voters and requiring them to present IDs to vote in the face of VIRTUALLY NON-EXISTENT VOTER FRAUD is RACISM! I hereby declare all consenting Republicans RACISTS until they stand up and object to these practices!

      by Words In Action on Tue Oct 02, 2012 at 01:58:26 PM PDT

      [ Parent ]

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