IT’S THE STUPID ECONOMY

Setting aside for the moment the dreadful situation for many American families created by the subprime lending meltdown, let’s look at the problems in the broader economy.

Sad, isn’t it, that the people and institutions with the power to do something remedial about it don’t seem to notice or care about problems until the stock market twitches?

The whole notion that a surging stock market and related “good economic news” mean the economy is in great shape is delusional, almost a shell game.

The ultra-wealthy one or two percent of the population took their five- and six-figure tax cuts and invested in the stock market, which naturally caused various indicators to surge with glee. And in a kind of parallel universe to ours, those with lots of money to spend have been investing like crazy, buying and selling and raking in profits, making it look like the economy is strong and growing, while the rest of us are borrowing money to pay for car repairs so we can get to the second (or third) job that we’ve had to take just to get by.

Is there anyone who works for someone else for a living who hasn’t noticed for quite some time that things are not as hunky-dory as Mr. Bush and his minions keep assuring us? After all, claiming that when the stock market is doing well we are all doing well totally ignores the fact that stocks and bonds are the source of income for investors, not for working stiffs.

There have been some unpleasant truths lurking beneath apparently never-ending home appreciation and our ability to buy more and more new clothes, running shoes, toys, kitchenware and flat-screen TVs—an ability that, on the face of it, has helped us live the American dream and then some.

First, there are the ritual assurances that unemployment is low: The government’s report on unemployment bases its assessment on the number of active claims for unemployment. But no one tracks the folks who gave up replacing a manufacturing or computer software job that was outsourced and went into floor sales for Home Depot or Wal-Mart, or the folks who have been unemployed so long their benefits have run out.

Ironically, the at-home mom who took a job to help make up the income loss is counted as a new hire, resolving that particular family struggle in a way that only contributes to the lie.

But the economy must be doing well, you may think—just look at how consumer spending is still up and the way we continue to party on!

What’s not talked about much is how many folks went for the terrific deals offered by MasterCard and Visa, seducing new “pre-qualified” borrowers with “introductory” low interest rates, knowing full well that the cards, used to pay for everything from groceries to weddings, would accrue balances well into higher interest rates. Or how many of those folks have paid down credit card debt with home equity loans, sold with such fervor on the TV ads, only to run them back up again to maintain a standard of living.

And what’s not talked about, too, is how many folks have been surviving for a while on the equity in their homes that, because of the remarkable increases in housing values over the past decade, has allowed them to borrow money and keep on keepin’ on.

We are beginning to understand the hidden cost of those clothes, shoes, toys, kitchenware and TVs in lost jobs and lower wages, but I suspect there are not many folks who have read the occasional buried news story telling how the typical American family income went flat several years ago.

Back in the 1990’s things were booming and America seemed to love the way folks were getting rich from the new information technology. But it wasn’t until recently that I learned how displaced that affection may have been.

According to an August 21, 2007 report in the New York Times, in every year from 2000 to 2005 the average income earned by Americans went down; in 2005, it was nearly 1% less than in the year 2000.

Now get this: “The White House said the fact that average incomes were smaller five years after the Internet bubble burst ‘should not surprise anyone.’”

In addition, the Times article went on to explain that growth in total incomes, the number from which the average is derived, “was concentrated among those making more than $1 million. . . . These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.”

This week in Congress the debate will continue as to whether private equity fund and hedge fund managers, whose earnings include a percentage of the profits, called “performance pay,” from sale of the capital assets they manage, should pay taxes like the rest of us. Currently the tax law allows those earnings to be taxed at the capital gains rate of 15% rather than at the 25% to 35% they would pay if their earnings were called earnings.

Lobbyists for the status quo argue that such earnings are essentially a payout for taking entrepreneurial risk, and thus properly taxed as a capital gain.”

(Y’know, if this is true, then I think we’ll see a whole new world open up for real estate firms hit by the subprime implosion!)

Supporters of the legislation point out, however, that capital gains income is not subject to the 2.9% Medicare tax paid by the rest of us, and that if fund managers were taxed the same way as the rest of us are, it would raise as much as $1 billion annually and cover the cost of insuring about 98,000 people!

Now I didn’t write all this just to get you depressed. And I don’t want you to think the situation is something we are stuck with, that it’s beyond our control, that there’s nothing we can do about it.

I just want you to know what’s going on, what’s lurking beneath the headlines, what’s causing the pinch for the American family.

Paraphrasing Molly Ivins, I just think it helps if the people know what is going on. What they do about it is up to them.