The Real Causes of Middle Class Malaise

The $13 trillion colossus that is the American economy has produced an unprecedented amount of wealth. While a lot of that wealth has flowed to those “at the top,” what's often ignored is that more Americans than ever before are able to obtain the “necessities of life.” The vast majority of the population can afford enough food to make most overweight, at least 1,500 square feet of air conditioned living space, one or more automobiles, a computer and color television set. So, in terms of day-to-day life, there is a historically narrow gap between the lifestyles of “average” Americans and wealthy Americans. The two items causing the greatest distress for Americans who aren’t wealthy haven't been effectively addressed by the Republicans or the Democrats: health insurance and retirement security.

On health care, Democrats continue to bash the pharma industry, one of America’s great success stories, and push policies that would create a government-run HMO on steroids. Republicans natter incessantly about “tort reform,” as if that’s some kind of panacea for our shameful health care system imbalances. The truth is that our current largely employer-based health insurance system, far from being a pillar of Capitalism, is a remnant of our World War II wage-controlled economy and a huge disincentive to both job mobility and entrepreneurialism. It places far too much of the health care burden on major U.S. manufacturers—who have the unlucky distinction of having employed a whole lot of workers for generations. This puts us at an enormous disadvantage with foreign manufacturers whose workforces receive health insurance from government systems (never mind the fact that those government systems have severe problems). Our employer-tethered health insurance system also discourages potential entrepreneurs from striking out on their own and upwardly-mobile workers from leaving big corporations for small, newer businesses with less generous health plans. Hardly a “pro-Republican” paradigm. A Mitt Romney-style health insurance mandate, combined with a tax code that pushes heath insurance premium deductions to individuals instead of employers, encourages Health Savings Accounts paired with low-cost catastrophic coverage and a federal subsidy for low income workers, would seem to be the basis for a real solution—not Hillary Care.

Retirement income security is the other big difference between the wealthy and the rest of America. Today’s world requires a new retirement security system that coordinates--and, perhaps, unifies--pensions, Social Security, 401Ks and other tax-favored retirement accounts. The money is certainly there—what’s lacking is imagination on the part of Republicans and a willingness on the part of Democrats to give up the perennially potent Social Security issue. A system that merges Social Security’s forced savings and employer match with individual control of the accounts is the only way to ensure that politicians can never raid Americans’ retirement accounts. At least a portion of those accounts should be tied to the overall growth of the economy through benificiary-controlled private investment; the remaining contributions should fund an insurance pool to underwrite a guaranteed minimum benefit. This hybrid would almost certainly be less costly than our current pay-as-you-go Social Security system which is entirely reliant on inflows from a shrinking workforce.

Clearly, empty rhetoric about income inequality is a waste of time. We should be crafting policies that get to the heart of “middle class malaise”: health care and retirement insecurity. To borrow President Reagan’s words in his 1981 inaugural address, “simple, but not easy.” The question is, which politicians from both parties will have the savvy and moxie to seize this opportunity?