The middle class languishes as the super-rich thrive

The good news for the U.S. economy as we enter 2013 is that the election’s over. The bad news is that the election’s over.

What’s good about it is that both parties in Washington can shed their preoccupation with the campaign theatrics that dominated our long national voyage from pre-primary jockeying through election day.

Yet the most dispiriting thing about the campaign’s end is that the economic challenges facing the majority of Americans remain unaddressed. As these words are being written, the end-of-year deficit debate in Washington remains largely unresolved.

UC Berkeley economist J. Bradford DeLong observed last week that we’re not heading toward the fiscal cliff so much as waiting for the “austerity bomb� to detonate. The lighted fuse on that bomb, he computed, has already cut likely growth in real gross domestic product for 2013 to 2.5% from 3%.

The policy positions on both sides presage smaller government, which is not the right prescription for an economy still struggling to recover. There will be lower federal spending at a time when the government participation in the economy is still crucial; there will be less take-home pay for the middle class and the working class, who pump almost everything they have into the marketplace.

The disagreement in Washington is no longer whether to cut, but where and by how much; and whether the seemingly inevitable end of the payroll tax holiday for working men and women will be balanced by continuation of their reduced income tax rates.

Quiz: How much do you know about the “fiscal cliff?�

Notwithstanding the election results, the course of negotiations in Washington suggests that in 2013, the Americans taking it on the chin will be people defined by Mitt Romney as the 47% who refuse to “take personal responsibility … for their lives,� but who are defined by more thoughtful observers of the American masses as seniors, veterans, disabled persons and the unemployed or underemployed. The progressive principles defended by President Obama on the stump, such as the sanctity of benefits promised the elderly and infirm, will be put on the table as bargaining chips to purchase modestly higher tax rates for the wealthy.

Meanwhile, the corporate CEOs who are marching on Washington under the banner of “fixthedebt.org,� a product of the think tank network of Wall Street billionaire Peter G. Peterson, will continue to insist that the deficit be cut by almost any means, except raising tax rates on themselves. (Among the suggestions from fixthedebt’s parent organization for a “downpayment� on tax reform: “eliminating preferences for corporate jets and second homes.� Talk about shared sacrifice!)

One year ago, I wrote in this very space that candidates on both sides of the partisan divide were poised to make the economic plight of the middle class the “centerpiece of their campaigns in the coming year.�

That prediction proved true. The middle-class economy was the “centerpiece.� And it got the same attention from the candidates as the floral decoration at a banquet table does from the guests, who praise its elegance then grumble that it blocks their reach for the butter dish. The terms “middle class� and “middle income� were uttered by Obama or candidate Romney 63 times in their three debates, and by Vice President Joe Biden and his GOP challenger Paul Ryan an additional 33 times in theirs.

Yet the election has yielded no sign of a remedy for the middle-class malady. The sickness is made up in equal parts of snail’s-pace job growth in the private sector; wholesale cutbacks of teaching jobs and other middle-class positions in the public sector; growing income inequality that narrows the economic base for all; a continuing overhang of excessive mortgage debt for homeowners; and a sharp deterioration in retirement security.

If anything, the end-of-year deficit debate points toward the exacerbation of every one of those factors.

It’s proper to point out (for the umpteenth time) that spreading the fruits of economic growth as broadly as possible is an indispensable fuel for more economic growth. Concentrating wealth in a small segment of the population undermines growth; that’s one reason the U.S. economy weakened markedly through the 1920s and why overall income growth in the present day has been lagging while corporate profits are soaring.

Those contradictory conditions can’t persist together for long. But as the Congressional Budget Office reported last year, average after-tax household income for the top 1% of Americans nearly tripled from 1979 to 2007, while income for the middle 60% in the income range grew only 40%. Consequently, the share of income collected by the top 20% of Americans rose to nearly 60% from 50% in that period, while the share of every other income group fell.

The 2008 recession moderated that trend somewhat, but it has resumed since then with a vengeance. In 2009 and 2010, according to studies by Emmanuel Saez of UC Berkeley, the average real income per family rose 2.3% — but that of the top 1% grew 11.6%. That means that 93% of the income gains in the post-recession period went to the top 1%.

What policies are on the horizon in Washington or our 50 statehouses to reverse this trend, corrosive as it is to the social fabric and the economy at large?

Assistance for state and local governments to avert further layoffs? That would be seen in Congress as excessive spending and a path to the “fiscal cliff.� Aggressive protection of employees’ collective-bargaining rights to preserve middle-class incomes in the labor pool? Ask Republicans in Michigan, who exploited a solid lame-duck legislative majority to ram through a state anti-union measure in the session’s final days.

Obama spoke out against the Michigan legislation before its passage, but his administration has not exactly been a beacon for workers’ rights at the federal level.

Even more disturbing is Obama’s apparent willingness to place retiree security on the bargaining table over the federal deficit. His last pre-Christmas offer to the GOP included a dismaying proposal to tie annual Social Security cost-of-living increases to an inflation measure known as the “chained CPI.�

Quiz: How much do you know about business news in 2012?

This index consistently runs lower than the conventional CPI by an average of about three-tenths of a percentage point per year. That means that by the time the average retiree would reach age 85, his or her benefit would be lower by about $1,000 than it would be under the current CPI; by 95, the shortfall would be nearly $1,400. In other words, it’s a change that hits the neediest and the oldest retirees most severely.

Yet this stealth benefit cut may well be implemented this year without a commensurate increase in revenue for Social Security, say by an increase in the cap on earnings subject to the payroll tax that funds the program, which will be $113,700 this year.

Have any of the parties so concerned about the Social Security benefits of America’s seniors put forth proposals to shore up the other pillars of retirement income — employer-funded pensions and personal savings — eaten away by corporate policies and the slipshod regulation of investment markets that led to the 2008 crash? (Don’t everyone answer at once.)

The lesson that 2012 bears for 2013 is that as the “fiscal cliff� facing the middle class has drawn ever closer, the solutions proposed have become ever more irrelevant to the problems at hand and more protective of the economic segment that needs the least protection.

One year ago, there was reason for hope that such fundamental disconnects between problem and solution would at least be aired in a presidential campaign. Today, there’s reason for despair that they’ll even be recognized by the people in whom we entrust our economic future.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at [email protected], read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.