Hillary's Middle Class Vanishing Act

Posted: Jun 04, 2007 12:01 AM
Hillary's Middle Class Vanishing Act

WASHINGTON - Sen. Hillary Clinton outlined an economic agenda for the country last week that was filled with the old 1930s-style, trickle-down, anti-capitalism rhetoric that is at the center of her party's leftist orthodoxy. It's impossible to see how her prescriptions could foster new venture capital, increased investment, broader global markets and wealth creation that are the building blocks for a strong economy.

The bad guys in Clinton's worldview are big corporations seeking to expand their market share and manufacturing base in a global economy, highly paid corporate executives who run successful businesses and the Bush administration's proposals and policies that seek to expand an ownership society.

But in her speech to the Manchester (N.H.) School of Technology, Clinton redefines Bush's "ownership society" as an "on-your-own society," a new spin on one of her most favorite putdowns of a free-market, laissez-faire economy: "survival of the fittest."

"I prefer a 'we're all in it together' society," she said, a phrase that has a kind of quasi-socialistic ring to it, one in which the government would play a stronger role in running the economy and setting the rules by which it is allowed to operate.

She concedes, "There is no greater force for economic growth than free markets." But this is a sharp reversal of the anti-capitalism views she included in her first book, "It Takes a Village," in which she blamed capitalism and free markets for all the ills in the world. But now she says, "Markets work best with rules that promote our values, protect our workers ... Fairness doesn't just happen. It requires the right government policies." Her economic policies would mean "pairing growth with fairness."

Does Clinton mean higher protectionist tariffs on imported goods that will raise the prices of everything we buy at Wal-Mart? She doesn't say. But she does say she would take away pro-growth tax incentives for corporations and that she will go after U.S. companies that manufacture some of their goods abroad to increase global market share and pass the savings on to their U.S. customers. Exactly how raising business costs, as well as the price of blue jeans, shoes and sneakers, will strengthen our economy isn't clear. "It's not as if America hasn't been successful these last six years, but the measure of success does not relate to what's happening in households across the country," she said. "It's like trickle-down economics ..." The middle class, in her view, is struggling and disappearing, and the answer to this "problem" is to go after rich, successful corporations and the wealthiest among us.

The disappearing middle class has been one of the Democrats' biggest myths. Remember those stories of the vanishing middle class in the 1980s. It turned out they didn't vanish at all, but large numbers of them climbed the economic ladder, and out of the middle class, which is how free-market capitalism is supposed to work.

There is new evidence this is what is happening once again in the economy that Clinton disparages as "trickle-down."

"To hear it from Democratic leaders and presidential candidates, you'd think the American dream was melting away as quickly as the glacial ice floes in Greenland," said Washington Post economic columnist Steven Pearlstein. But Pearlstein, pointing to a newly updated study by economist Stephen Rose, says the "rumors of the demise of the American middle class are greatly exaggerated. In fact, living standards for most Americans are improving. "Not everyone is flipping hamburgers or working at Wal-Mart. To the degree that the middle class is shrinking, it is because more people are rising out of it than falling from it," he said.

Rose, it should be noted, is no Milton Friedman acolyte. He worked on the Democratic staff of the Joint Economic Committee of Congress and for the Labor Department in the Clinton administration.

But in an updated study of his "Social Stratification in the United States," he pokes huge holes in what Pearlstein calls "the sky-is-falling rhetoric of the Democratic left."

The median household-income figure has been widely reported to be about $44,500. But in Rose's readjusted accounting of household wealth, confined to heads of households in their prime income-producing years (29 to 59), the actual median income for a "typical American family" is $63,000. To be sure, the number of households in the middle has fallen. Between 1979 and 2004, household incomes from $30,000 to $90,000 fell from 47 percent to 39 percent. But these people didn't disappear or fall deeper into poverty. Those making more than $90,000 jumped by almost 9 percent, while the percentage of poorer households stayed the same.

Contrary to Clinton's anti-wealth-creating proposals, the challenge ahead is to offer a broader range of incentives for businesses to grow, and for workers to save and invest more for their economic security.

And that means the opposite of what she is proposing -- cutting income taxes further, automatic IRAs for all workers and encouraging them to put aside a small amount of their payroll taxes into a diversified fund of blue-chip stocks and bonds for a more comfortable retirement.

That's not an "on-your-own society," it's a wealth-creating society that is dependent only upon its people for its economic well-being.