As I’ve described frequently over the last few months, I had high hopes for Mitt Romney’s economic plan.Alas, until very recently–yesterday, in fact–Romney’s stated economic solution has strongly suggested that he either doesn’t understand what’s wrong with the U.S. economy, or, worse, doesn’t care (as long he gives himself and other super-high-earners a tax cut).
Specifically, until yesterday, Romney has said that the way to fix our economy is to give the richest Americans and richest American companies a tax break, so they can start investing and spending.
The reason this won’t work is that the problem in the economy is not that the richest Americans and companies don’t have enough money to spend and invest–they have plenty of it. The richest Americans have captured almost all of the growth in incomes over the past decade and now earn an astoundingly high percentage of the nation’s total income. Corporate profit margins, meanwhile, are at an all-time high, and companies have excess cash coming out of their ears.
The real reason the economy is struggling is that the vast American middle class–the “20%-90% of wage earners” is strapped. After adjusting for inflation, average hourly earnings in this country have not increased in more than 50 years. Middle class jobs have been shipped overseas. Tax policy has rewarded the “owner” class rather than the worker class. And so on.
For several decades leading up to the financial crisis, the American consumer made up for stagnant incomes by borrowing. But then, just before the financial crisis, consumers collective debt load became too much, and now the consumer is “deleveraging” (read: spending less and saving more).
As any business executive will tell you, when your customers are hurting, your business is hurting. And the primary customers of most companies that operate in the United States are American consumers, who are hurting.
So if you want to do something to help the U.S. economy, you don’t give the “owner” class another tax break. You give the tax break to the middle class. And you maintain government spending and postpone the eventually-very-much-needed deficit reduction until the middle class is stronger and the private sector is strongly recovering.
Now, yesterday, Mitt Romney changed his message on that. Specifically, he started talking about giving America a middle-class tax cut. And he suggested that he would like to put off government spending cuts until later, thus ignoring the deficit for the time being.
That’s a big change of message.
And it suggests that Mitt Romney finally does understand what’s wrong with the economy (or, at least, what American voters will respond to).
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But in case he doesn’t, here’s another anecdote, this one from Nick Hanauer, a highly successful entrepreneur and businessman and the owner of a mid-size business that sells down comforters and pillows:My family business is the Pacific Coast Feather Company, one of the country’s largest manufacturers of bed pillows and down comforters. Sales are approximately $300 million per year.
Business sucks, and the reason is that not that many people can afford to buy a pillow every year anymore.
The problem is that even though people like me and Mitt Romney make 1000 times the median wage, both of us only have 2 pillows on our beds. Not 2,000. If we had a more reasonable distribution of income, I’d sell a shitload more pillows.
And that’s the key:
Most of the spending in this country comes from average Americans, not “the 1%” or “the 0.1%.” Giving the 1% more money to spend and invest won’t help, because they’re already got all the money they need.
(The 1% would obviously enjoy a tax cut–who wouldn’t? But that doesn’t mean it would fix the economy).
Happily, Mitt Romney appears to be changing his tune on what he will do to help the economy. His new message suggests that he will ignore the deficit for the time being, which the Tea Party won’t like. But his new emphasis is far more likely to help the ailing economy.
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