5 questions with Jared Bernstein
By
Cindy Krischer Goodman Read Spanish Version
Taken
from The Miami Herald Business Monday section. Progreso Weekly
reprinted it for the importance of the issue and the clarity of
Bernstein’s argument.
Economic
uncertainty is having a tremendous ripple effect on family life.
Economist Jared Bernstein knows why family budgets are being forced
to stretch further. He knows how business cycles have benefited and
hurt American families. In his new book Crunch:
Why Do I Feel So Squeezed?,
Bernstein offers an explanation for the middle-class squeeze. His
take on how American families will fare in a recession comes from
years of research on income inequality, trends in employment and
earnings, low-wage labor markets and the analysis of federal and
state economic policies.
Bernstein
is traveling the country, promoting his newest book. But typically,
he is in Washington, D.C., where he works as director of the Living
Standards Program at the Economic Policy Institute, a nonprofit think
tank. He is also the co-author of an ongoing series, The
State of Working America.
Bernstein
combines his background as a social worker with his newer role as an
economist to get his message out that all Americans need to share in
economic growth. The Miami Herald listened in on a webinar Bernstein
participated in and caught up with him afterward. We asked him about
the turbulent economic times and the squeeze on household budgets. He
urged all Americans to understand where the presidential candidates
stand on economic policy. ”The economic debate we are having in this
country is one you can’t afford not to understand,” Bernstein says.
“The stakes of these debates are too high to throw your hands up
and say the issues are too complex.”
Q:
You have identified some serious economic stress out there. What is
the middle-class squeeze?
A:
Middle-class squeeze is the gap between what people earn and what
they need to make their budgets. Middle-class Americans aspire to
have decent homes and hope that their kids will do better than they
did.
Right
now, food costs are up 5 percent year over year. That’s the highest
rate in about 18 years or so. College tuition has been rising at a
rate surpassing inflation for a long time. The rate of increase
employees have to pay for health insurance they get through their
jobs is rising at double digits.
Now
we look at paychecks. As the job market has weakened, the pace at
which compensation — wages plus benefits — has grown is below
inflation.
At
the same time, the median family income is going down. There’s no
universal definition of middle-class because there are different
economies from coast to coast and border to border. Someone living on
$100,000 in Manhattan is middle class and someone living on that in
rural Alabama is above middle class.
We
tend to look at the median family income. The median family income in
2007 is $500 lower than in 2000. That’s another staggering
observation.
Q:
You
assert that income inequality is a big part of the squeeze. You
discovered the rich
are getting richer and the rest of us aren’t. Why is this happening
and what is the effect?
A:
The share of income going to the top 1 percent of households
(including capital gains realized) is 23 percent. That’s the highest
share since 1928. The gap for those at the very top of the income
scale and those at the bottom is wider than it has been in many
decades. There’s a real danger of ending up with two separate
economies — one where the benefits of growth flow to the top and the
other economy where people have to eke out the kind of opportunities
that the American middle class was built on.
Q:
Why
do you believe this recession will be different?
A:
The last recession ended in late 2001 and the economy began to grow.
Probably in December 2007 or January 2008, that cycle ended and we
entered another recession. This is the first time on record, going
back to 1937, that the typical family income failed to regain its
prior peak over the course of a business cycle.
What
was missing is that the last recession ended in late 2001, but we
didn’t start adding jobs until late 2003 and the rate of job growth
was low. Remember, most families don’t have investments and depend on
their paychecks.
And
in the past, families had something to fall back on. In this case,
income was stagnant and there was much more indebtedness. It made
middle-income families uniquely vulnerable to the downturn.
Going
forward, I believe spending will grow more slowly. For the first time
in two decades, the American consumer appears to be exhausted. It
hurts to make cuts, but as a nation we were consuming beyond our
means and you can’t do that for too long.
Q:
Is
the economic safety net for American families working? What needs to
happen to loosen the squeeze?
A:
I think someone needs to look at programs that are supposed to kick
in — food stamps, welfare, medical assistance. How effective are
they? The safety net appears to work better when the economy is
strong and catches fewer people when the economy is weakened. It is
not that the safety net is not there, but it is more porous than it
used to be. We want it to be counter-cyclical so it would be
ratcheted up when the business cycle goes south. There are too few
benefits kicking in to help when people lose their jobs.
I
think there need to be policy changes that speak to this challenge. I
would argue three presidential candidates are talking actively and
giving speeches about what I am talking about. They all have
different ideas about policy agenda. I don’t believe any agenda will
totally turn these things around. But I do believe we can reconnect
the economy’s growth to the income of middle-class families far
better than it has been.
Q:
For
most U.S. working families, how bad will it get?
A:
That’s unknowable. I think it will last a while because housing
corrections take a long time. The recession arrived sooner in areas
where the housing bubble is more pronounced and it probably is going
to stay longer. Many are arguing this recession might be mild in
Gross Domestic Product terms (the broadest measure of the economy’s
performance). But if you look at family income and jobless recovery
and unemployment you would see a different story. Those mean more to
a family’s well being. I think we’re going to see a period of a few
years of stagnancy.
