It's The Middle Class, Stupid

The news reports keeping bringing up the phrase "It's the Economy, Stupid" in citing parallels between the Clinton presidential campaign of 1992 and the current. I think the phrase now needs to be even more specific, as in "The economy is the middle class, stupid."

If you look at any country in the world, what separates a thriving economy from a weak one is that country has a three class economy where the middle class is thriving. The health of the middle class is probably the single most important factor in determining the health of the national economy. That classes spending habits is the oil that keeps the economic engine going and the tendency of the Bush admin and the upper class to ignore that has been incredibly damaging to the strength of the nation.

Right now, the middle class is under siege with the housing crunch, the decreased dollar, high inflation and other economic problems. Joining the middle, the lower class is feeling the crunch even more as the cost of living is dramatically increasing across the board. Whether it’s a home, food, energy, or transportation, all of it has demonstrated double digit increases in costs over the last 7 years. None of it offset by increases in wages from companies that have enjoyed the Bush years of tax cuts combined with extravagant spending.

Congress has passed an economic stimulus plan that seems geared to help the middle and lower class. The plan calls for the $300 to $1200 check to each person in the country depending on income and number of children and if below $174,000 in income. It increases loan purchase limits and provides write off for businesses purchasing capital equipment. The plan seems to understand the important of the middle class. To bad it does nothing to address the problems that are causing the current economic recession.

The economy needs people buying lots of things they really don't need to live, such as iPods, TVs, cars and so forth. The theory behind these checks is the same one that drove the $200 refund back in 2002 - that people will take the money and blow it. What happened then will happen now is people will spend the money on meeting minimum cost of living issues and paying off debt. While good fiscal policy for the individual, it’s not so good for the economy. Giving people a check one day doesn't fix the problems that people face year round.

If Congress and the President truly wanted to fix the economy, they will have come up with plans that encourage the growth and stability of the middle class. Education plans to help elevate the lower class. Tax and incentive plans to help the growth of small businesses in the form of lower cost loans. Methods to reduce the deficit (rather then increase it) so the dollar regains some of its former value (but not all) so the cost of goods decrease. Methods to decrease the cost of living across the board, most especially the dramatic cost in health insurance, energy and food should be of high priority.

Finally something has to be done with how business treats their workers. Right now job security is a myth. Job wages and job growth is stagnant and loyalty is non-existent. If people don't have confidence in their jobs, they don't have confidence in committing to short term and long term spending.

What do you think will create greater confidence, a $600 check from the government, or $600 bonus or raise from your company for a job well done? What will get people to commit to the future in their spending choices, a vote of confidence from the government... or one from your boss? What is better for the economy, one $40 million bonus to a CEO or lots of smaller bonuses to employees beneath him? Any economic plan should encourage companies to invest in their people, not their CEOs. Any plan should attempt to encourage job security and growth, not just hope that people will just blow the money on a new toy. A plan that doesn’t strive to increase the size and stability of the middle class is a plan of failure.

The current plan is a band-aid at best, that exists simply to create a voter pleasing sound bite of "money is coming to you." It’s not a solution and what we need now is leaders that will create solutions, not digestible sound bites.