It's Still the Economy, Stupid!

Rev. Abhi Janamanchi

August 31, 2008

This is Labor Day weekend, a time we set aside each year to honor working people. It's also a time to relax, have fun, and do other things besides work. But there's not much to rejoice these days, particularly from the fruits of our labors. Robyn Blumner writes in the St. Pete Times that in the last seven years, while worker productivity increased by 2.5%, "wages stagnated, health benefits withered, and income inequality soared."

Over the last couple of months, we have seen and read reports of the economy lurching from one crisis to another: a further slowdown in home building and home sales, a speed up of home and business foreclosures, an increase in unemployment and a corresponding decrease in the number of jobs available, and serious financial problems for banks, businesses, retailers, airlines, and nearly everyone else. Just as importantly, confidence is waning, as more and more people worry about money and debts and dreams that will likely go unmet in the future.

There is no doubt that the economy is, above all others, the main issue in the upcoming election. A recent poll by NPR teamed up with the Kaiser Family Foundation and Harvard's School of Public Health revealed that seven out of ten voters in the two swing states - Florida and Ohio - said that the economy is a top issue in deciding who they'll vote for president.

Half of the people polled in Florida said that they are struggling not just with one, but with multiple economic problems. There's the collapse of the housing market and the ongoing decline in home values. Also, a credit crunch is making it hard for consumers to borrow their way out of trouble. Then there’s the quadruple whammy: spiraling food and fuel prices. The big ones, of course, are job loss, housing market decline, exorbitant cost of health care, and gas prices.

The fact that the economy continues to grow at an average rate of 3% each year - that it is producing more goods and services each year - no longer guarantees that lower and middle income families benefit from its growth. In fact, for the first time on record, an economic expansion seems to have ended without family income having risen substantially.

Elizabeth Warren, a professor at Harvard law school, indicated in a written testimony before the Joint Economic Committee recently that median household income dropped by $1175 between 2000 and 2007 (after being adjusted for inflation). At the same time, the average family is spending $4655 more on basic expenses, such as gas, housing, food, and health insurance. Families with children saw their child care costs soar. Those with children under age 5 spent an additional $1508 a month, while after-school costs for older children rose by $622. Many people have turned to credit cards to cover these expenses that today, nearly 10% of total disposable income in the US goes to paying off such debt, she reported. A big chunk of this debt will not be repaid which is one of the basic reasons for the economic downturn.

"There have never been since the Depression so many families standing right on the edge," Warren said. "Families have tightened their belts. They have cut down in every discretionary spending area they possibly can. However, these costs are tearing a hole in the family they simply can't make up. You can't cut out enough lattes to pay for health insurance in America." But it's not just people with low and middle incomes who are affected but higher-income level folks as well partly because of the volatilities in the stock and real estate markets.

In my opinion, the current economic downturn is without precedent and more serious than what we have seen before for three reasons: the addictive consumptive behaviors and chronic financial illness of millions of Americans, the steady erosion of societal safety nets, and, above all, America's unhealthy and growing dependence on foreign capital.

Peter G. Peterson, former Chairman of the Federal Reserve Bank and author of Running on Empty: How the Democratic and Republican Parties are Bankrupting our Future and What Americans can do About it, says, "Because Americans import far more goods and services than they export, and because the federal government borrows so much and Americans save so little, the American economy is increasingly owned by, or indebted to foreigners."

This is the so-called current-account deficit, which indicates how much of the United States is being sold off to foreign powers and countries, or promising to pay them in future interest payments. According to him, the twin deficits - the US budget deficit and current-account deficit - pose a dual challenge. "The budget deficit forces us to borrow from other countries to finance our home mortgages, credit card balances, and the business investments that fuel economic growth. If they don't give money, interest rates would shoot up, the dollar would likely sink, and the economy would suffer further. But this kind of access to easy money also reduces pressure on our government to cut its own reckless borrowing, and on ordinary Americans to reduce their consumption and increase their savings."

The twin deficits are now so large that there is a real danger of foreign investors losing faith in the dollar. Interest payments on the national debt alone totaled an enormous $377.3 billion during the first nine months of the current fiscal year – the fourth-highest spending category on the budget. Our twin deficits pose huge risks to the economy that we should not and need not be taking. "As a nation," Peterson says, "we are running on empty."

The next President will inherit serious problems created by this kind of sustained fiscal irresponsibility. They will not only limit his options but also leave him with no choice but to spend much of his time just mopping up the mess.

Again, according to Peter Peterson, "it will take a rare combination of bold presidential leadership and enlightened bipartisanship to forge a reform program equal to the challenge." The bottom line: the economic policies (not promises) of the next president are going to be extremely important in determining the future economic health of our nation. So, how are the candidates planning to improve the economy?

Senator McCain thinks the way out of this mess is to push a pro-business plan on taxes, trade, and energy. He proposes making the Bush tax cuts permanent, lower the maximum corporate income tax rate from 35% to 25%, and implement a permanent research and development tax credit based on wages. McCain is expected to continue Bush's push for free trade agreements, including pending deals with South Korea and Colombia. The GOP senator favors offshore drilling for oil and natural gas and wants to build 45 new nuclear plants in the U.S. by 2030. He takes a top-down approach.

Senator Obama calls for more tax benefits to individuals but more taxes on high income earners. He would keep in place some of the Bush tax cuts and institute a permanent R&D credit. He would increase the maximum capital gains tax rate from 15% to 25%, tax hedge fund managers' share of their clients' earnings as ordinary income rather than capital gains, and implement a payroll tax surcharge on people who earn more than $250,000 annually. On trade, Obama suggests renegotiating the North American Free Trade Agreement, and implementing strong environmental and labor provisions in future trade deals. He wants to see a permanent renewable-energy tax credit to promote investment in wind and solar resources. He takes a bottom-up approach.

Both plans come out of ideological scenarios that the candidates and their respective parties espouse. But they do have a few things in common. Both could prove expensive, neither plan provides the fiscal sobriety that Washington must embrace, and neither plan is committed to a balanced budget. A recent study by the Tax Policy Center, a Washington think tank, says both candidates "have proposed tax plans that would substantially increase the national debt over the next 10 years" -- Obama by $2.7 trillion, McCain by $3.6 trillion.

It is impossible for either candidate to deliver on all his promises, while simultaneously shrinking the deficits and meaningfully addressing Social Security and Medicare. But they are not willing to openly admit how bad the situation really is because, if they do, it could cost them the election.

Robert Samuelson calls it 'fantasy politics.' In an op-ed column in the St. Pete Times last Wednesday, he wrote that instead of having a fierce debate over the role of government -- what should it do, for whom and why, what can we afford, who should pay -- the candidates are engaging in a "bidding war... to see who can promise the most appealing package of new spending programs and tax cuts. As we watch the conventions, we should recognize that we've entered an era of fantasy politics. Like fantasy football and baseball, fantasy politics is an exercise in make-believe that is intended to keep its players occupied and make the winners feel good."

He concludes his article by saying, "Proposals aren't necessarily intended to be adopted. They're selected to win applause and please voters - just as quarterbacks, in fantasy football, are selected for their accuracy. In November, one candidate will win this game. But the country as a whole may lose."

My reflections this morning may have caused in you, feelings of anger, anxiety, shame, disappointment, or some other strong emotion. These emotions, while entirely valid, also tend to get in the way of our engaging with and addressing our own and the nation's economic well-being honestly and substantially.

Ok then, preacher. Now that you have painted a vivid and inspiring picture and thoroughly depressed everybody, do you have something hopeful to say? And what can we do to cope with the current crisis while working to change the situation?

In late June, the hosts of National Public Radio's All Things Considered invited listeners to comment on how they were coping with the economic downturn. How were they dealing with higher gas and food prices? Close to 150 people responded, resulting in a segment called "Voices on the Economy."

Teresa from Indiana said that after she lost both her house and her business, she sold her car and moved her family closer to her work. Now they get around by bike and bus, which allows them to live completely within their means and without credit. "It is very difficult but surprisingly pleasant," she said, reckoning that she has inadvertently become one of the "new Americans" who are learning to live on less.

Craig from Michigan said that he too gets around by bicycle these days. He also buys day-old bread and is making use of his public library. Next he plans to begin baking bread and fishing in order to supplement his food budget. "I enjoy more now that I am forced to slow down," he said. "I was really surprised--there was a benefit I didn't expect."

Finally, Steve from California said that the impact of the economy on him and his wife was "probably on the low side of average." He reckoned that being Luddites helped. Their computer is still on dial-up, they turn off the lights when they leave a room, and they watch very little television. These are the habits of a lifetime, he said, from "parents who lived through the Depression or told us if we couldn't pay cash for it we probably could do without it."

Even as I reminded myself that I was listening to NPR, I was buoyed up by these middle-class voices on the economy. I also learned something from them.

In the first place, these witnesses were able to articulate the good news in the bad news. They weren't held hostage by the 'fear of scarcity.' What do I mean by that? When we believe that there is not enough - not enough money, not enough energy or time, not enough love or loyalty - when we believe that there is not enough, we become stingy, cranky, and focused on hoarding whatever we believe is in short supply. Few of us are ennobled by our worries about money. Believing in abundance, on the other hand, does bring out the best in us. It makes us feel grateful, generous, and generally optimistic. A sense of abundance brings people together -– even if an objective accounting of assets doesn't show much wealth.

Faced with circumstances beyond their control, these folks found concrete ways to act for their own good and the good of their families. They decided not to remain helpless. Their new simplicity may not be voluntary, but that has not prevented them from finding the health in it. In every case, having less money is taking them into closer relationship with the things that give them life: bread, fish, community, children, exercise. They walk easier on the earth. They have lowered their "enough" thresholds. They make less, sound like plenty.

Believing in abundance, of course, is not the same as expecting your bank account balance to go up by itself or your credit card balance to go down, or your monthly mortgage payment to disappear. Believing that there is "enough" is a tool that helps us to steward our resources more faithfully and more thoughtfully.

In the second place, they made me realize that we are all in this together. There is no doubt that we are more fiscally encumbered than ever before in American history. But we need to look at this burden as an opportunity - to learn from the mistakes of the past, to take individual responsibility, to educate ourselves about the situation, and work together to rebuild a society based on thrift, stewardship, sustainability, and justice between generations.

We need to keep faith with the American creed that people of good will can build a better country and a better world. We need to, at the same time, reject the conventional wisdom that says the current economy, with its harmful impact on our society and our democracy, is the best we can possibly do.

You see, we are inheritors of a tradition that believes that the American people, working together with and through their government, can make the economy grow, reduce economic inequalities and insecurities, provide affordable and accessible healthcare, ensure retirement income security, protect the rights of working people, set appropriate limits for corporations, and help households balance work and family life.

That leads to my final point - we have a real opportunity to become truly counter-cultural and live out the values of our faith. Our society bombards us with all kinds of messages about the size of the home we should have, the zip-code in which we should live, the kind of tv we should buy, the kind of car we should drive, and so many other things. It takes an act of faith, literally an application of our principles and highest values, to sort through which of these messages are healthy and which of these messages are "sub-prime."

Our faith challenges us to question and critique these cultural norms, to look beyond the glitz and glamour of Madison Avenue, and pay attention to what is really important in life. It asks us to ponder: what is, ultimately, of value? What things are important? What is it that really makes us happy and contented as opposed to those things that make false promises and leave us feeling empty and unfulfilled? What is it that we leave behind when we die? And what is the kind of future that we would like our children and grandchildren to have? These are not just questions. They are spiritual invitations, no, ethical imperatives, that challenge us to shake off our complacencies, dependencies, cynicism, and despair to repair what is broken in our personal and collective lives and create a sustainable world for the future.

This is by no means an easy task. I can personally attest to that having been a willing participant in the addictive game of consumerism. But, you see, breaking shackles is never easy. Nor is it cheap. But we need to begin somewhere, sometime. And that time is NOW.

The following sources and resources informed and inspired my reflections:

Peter G. Peterson, Running on Empty: How the Democratic and Republican Parties are Bankrupting our Future and What Americans can do About it

Barbara Brown Taylor, The Upside of a Downturn

Thom Belote, Making It and Faking It in America

Op-ed columns by Robyn Blumner (8/31), Robert Samuelson (8/27) in the St. Pete Times

NPR/Kaiser/Harvard poll on the economy

Tami Lubby, Middle Class: 'On the edge,' CNNMoney.com

An Updated Analysis of the 2008 Presidential Candidates' Tax Plans, www.taxpolicycenter.org