Repairing middle class key to recovery by John Havelock

Public discussion of complex, derivative financial instruments and other arcane issues has made the current financial mess seem complicated beyond the understanding of the average citizen. The murky currents in the financial mire are indeed complex but how we managed to wade into this swamp is quite simple. Think of the fable of the goose that laid golden eggs and the moral we draw from it.

The American domestic economy is not unlike a business. The owner can take a certain amount out of the business each year as profit, but if he takes too much out for his personal enrichment, cutting his employees' salaries and borrowing money for the business but lining his own pocket, the business will end up in ruin.

For the last several decades, we have read about boy wonders making millions or billions in the financial markets. Less reported, thousands of others in positions of economic power cleaned up at comparable rates. With ownership severed from management, effective checks on executive compensation dwindled. Year after year, we have yawned over published data showing that an ever larger share of the nation's wealth, billions upon billions, went to a fraction of 1 percent of the population, ignoring the dire consequences for our economy and our society.

Over the same period, the real income of Everyman, the wage earner representative of the bottom 60 percent, was stagnant or dropped. Notwithstanding the implications of this trend, the advertising industry, movies and TV, and the president with his "ownership society" insisted on telling Everyman that he should buy a new house, new car, plasma TV, four-wheeler and other newly established necessities of life. Consumer credit, bending established rules, has beckoned Everyman into the lifestyle he might have maintained had his income continued to rise. Instead it was squeezed down.

Understandably, with aggressive marketing by credit card and mortgage companies, personal debt soared into the trillions as Everyman kept up by borrowing at usurious rates without comparable income. Out of this system, the rich were getting even richer but on money that Everyman did not have but only promised to pay.

The American economic system depends on a growing middle class, producing more and spending more. The more Everyman earns the more he buys and, to a point, more profits can be taken. By taking too much out of the system, the financial elites wrecked it, killing the goose that laid golden eggs.

When the worst economic fires have been dampened, the country must turn to long-term solutions. The remedies will likely come from the committee to address the future of the middle class, established without much fanfare by the president-elect. There is always some clucking about the creation of a study committee, commonly used as a method of putting off a problem. And indeed, the economic problems that must be addressed up front are so urgent as to push all else off the page. But beyond these crises of the moment, the committee's topic, the restoration of America's middle class, is the long-term policy cure required to put America back on the track to greatness.

How does the country put Everyman's income back on the gently rising track that he enjoyed from the end of World War II to the early '80s? The share taken by financial elites must be brought back to a level of reason. Runaway compensation and the building of economic and social dynasties can be checked by returning to the tax policies that prevailed during the Eisenhower administration. New revenue can be reallocated to cover health care and retirement deficits, incidentally making our industries more competitive internationally.

Federal leadership in promoting accessible, quality education is essential to optimize human resources and make real middle-class dreams of equal opportunity. Of course there's more, but the president-elect has put his finger on the root cause of our problem by pointing to the repair of the damaged middle class as the post-crisis priority.