Many people might think that the country's problems stem from the fact that too much money has been going to the very rich. Over the last three decades, the richest 1 percent of the population has increased its share of national income by almost 10 percentage points. This comes to $1.5 trillion a year, or as the deficit hawks are fond of saying, $90 trillion over the next 75 years.
To put this in context, the size of this upward redistribution to the richest 1 percent over the last three decades is roughly large enough to double the income of all the households in the bottom half of the income distribution. The upward redistribution amounts to an average of more than 1.2 million dollars a year for each of the families in the richest 1 percent of the population.
And this upward redistribution was brought about by deliberate policy. We pursued a trade and high dollar policy that was intended to put downward pressure on the wages of manufacturing workers. The Federal Reserve Board deliberately kept unemployment higher than necessary in order to weaken workers' bargaining power. We extended patent monopolies to allow drug companies to jack up prices, raking in hundreds of billions a year. And, we gave the Wall Street banks the benefit of “too big to fail” status so they can borrow with a government subsidy.
These policies and others fueled this enormous upward redistribution. But the deficit hawks don't want us talking about any of these things.
The deficit hawks insist that we have to cut Social Security and Medicare benefits now! They are busy hyperventilating over the enormous deficits, which are the result of the economic collapse, which was in turn the result of their economic mismanagement. (Wait, we are not supposed to talk about that.)
And the deficit hawks have clear ideas on how they want to deal with the costs of Social Security and Medicare over the coming decades. And it does not involve taking money from the tiny group of wealthy people who have profited enormously at the expense of the middle class over the last three decades?
Nor are the deficit hawks interested in reining in the drug companies, the insurance companies or the doctors. The bloated prices and exorbitant pay of these actors are the main reason that US health care costs are so wildly out of line with health care costs in other wealthy countries.
But deficit hawks don't get paid to go after rich people or the health care industry. Deficit hawks get paid to go after the benefits of middle-income people. This is why we were treated to a Washington Post column by finance industry executive Robert Pozen telling liberals that they should support his plan for raising the retirement age and cutting Social Security benefits for higher income earners.
When Pozen talks about cutting benefits for higher income earners he is not thinking of people like Peter Peterson or Robert Rubin, he has his gun sights on people earning $40,000 to $80,000 a year. In other words, Pozen wants to cut benefits for workers like schoolteachers, firefighters and nurses.
These are workers that definitely enjoy somewhat higher pay and a higher standard of living than most of the workforce, but only in Washington deficit hawks' circles are these people living lavish lifestyles that need to be cut back. These workers are quite explicitly the targets of the Washington deficit hawk gang.
The deficit hawk crew will even shed some crocodile tears for the poor who earn near the minimum wage and live near the poverty level. They would raise their benefits if not for those greedy plumbers and mechanics, who insist on getting the Social Security benefits that they paid for.
In the next few weeks, we will be treated to an endless parade of budget experts who will be yapping about “entitlements” and insisting that middle-income workers are living too lavishly. While all these experts have really impressive credentials, it is important to remember that these credentials did not prevent this highly paid crew from overlooking the largest asset bubble in the history of the world.
If this group had paid one-tenth as much attention to the housing bubble as they are now paying to the deficit projections, we would not be sitting around with 25 million who are unemployed, underemployed or out of the workforce altogether. The deficit hawks are very good when it comes to whining about the deficit and demanding sacrifices from middle-class workers. They just aren't very good when it comes to understanding the economy.