Robert Reich Weighs in on the Economic Squeeze on American Families

I am posting two recent posts by Robert Reich with his permission, on how the recession is effecting the lives of ordinary Americans. Whether Clinton or Obama win the primary, these arehe primary issues that must be addressed.

In the first, The Huge Hole in Unemployment Insurance he discusses the plight of those part time workers, or people employed in a full time job for less than a year, who are not even covered by unemployment insurance, and thus won't be helped by an extending the length of time that people can receive benefits.

The Huge Hole in Unemployment Insurance

We learned last Friday that payrolls shrunk by 17,000 in January, a job loss not seen since the tail end of the last recession, in 2003. And last week, the number of laid off workers filing applications for unemployment benefits soared by 69,000 to 375,000. It was the most new claims in one week since October, 2005, when Hurricane Katrina and other storms decimated the Gulf Coast.

Appropriately enough, the Senate is considering whether to lengthen the period of time people can collect unemployment benefits if they still can’t find a job after six months, which is how long unemployment insurance is now available. That’s sensible, but it doesn't fill a huge hole in the unemployment insurance system.

A new study by the Economic Policy Institute estimates almost 2 million job losers will run out of unemployment benefits this year unless benefits are extended. It’s not unusual to extend benefits during a recession, because recessions often last longer than six months and businesses don’t start hiring again until the economy picks up. And there are few better ways to stimulate the economy. Unemployment benefits put cash directly in the hands of people who need it most, and are most likely to spend it.

But running out of benefits isn’t the biggest problem facing job losers. It’s not getting benefits to begin with. The troubling fact is most people who lose their jobs simply don’t qualify.

That’s because the unemployment insurance system was designed more than a half century ago when most people who lost their jobs had been employed full-time for years, and when most households had one wage earner. Even though those realities have changed, the rules haven’t. In most states, you’re eligible for unemployment insurance only if you’ve lost a full-time job that you’ve had for quite a while.

This leaves out just about everyone who’s lost one or more part-time jobs. And also excludes any full-time worker who had been at the job less than a year before they got canned. It also excludes people who had to leave their job to accompany a working spouse to another city or state. Altogether, the current rules leave out more than half of the American workforce.

So it’s not enough merely to extend unemployment benefits. If Congress really wants to help the millions of Americans who will lose their jobs in the coming recession, and also stimulate the economy, it should make sure job-losers get benefits in the first place.

In the second It's Not Just the Business Cycle he discusses the pressures on middle income families who are struggling to stay afloat financially.

A better stimulus package? More bailouts of Wall Street? Another Fed rate cut? None of these fixes will help much because they do not deal with the underlying problem now facing American consumers, and the underlying anxiety now gripping American voters.

The problem lies deeper than the current slowdown and transcends the business cycle.

The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is now ending. Americans are beginning to feel the consequences.

The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 – from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.

But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma tele­vision sets, new appliances, vacations.

With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.

But this final coping mechanism can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. As Moody’s reported recently, defaults on home equity loans have surged to the highest level this decade. Car and credit card debt is next. Personal bankruptcies rose 48 per cent in first half of 2007, probably even more in the second half, which means a wave of defaults on consumer loans. Meanwhile, as foreigners begin shifting out of dollars, we will no longer have access to cheap foreign goods and services.

In short, the anxiety gripping the middle class -- and their inability to go on buying enough to keep the economy going -- is not simply a product of the current economic slowdown. The underlying problem began around 1970. Any presidential candidate seeking to address it will have to think bigger than bailing out lenders and borrowers, or stimulating the economy with tax cuts and spending increases.

Most Americans are still not prospering in the high-technology, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a small number of people at the very top.

The candidate who acknowledges this and comes up with ways not just to stimulate the economy but also to boost the wages of the bottom two-thirds of Americans –- through, say, a more progressive tax (including a larger Earned-Income Tax Credit), stronger unions and, over the longer term, better schools for children from lower-and moderate-income families and better access to higher education –- will have a good chance of winning over America’s large, and increasingly anxious, voters.