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This isn't all bad. Conditions in stores, restaurants, and hospitals are often better than in factories. Jobs are more stable because labor in these businesses is mainly a fixed cost — an assembly line can be idled at a moment's notice, but a store needs salesclerks even when business is down. Goods made abroad are cheap, which helps consumers. The health and education sectors now have almost 30 percent more workers than they did in 2000, and that means, in part, more and better services in these areas.

The downside is that because many of these jobs aren't unionized, wages are lousy. The only thing that reliably bolsters service wages is the federal minimum wage: when it rises, as it did from $6.55 to $7.25 in 2009, service jobs above the minimum are forced up as well (to maintain the spread). And when Congress doesn't raise the minimum, real wages decline with inflation.

Is it any surprise that today our leading reactionaries come from retail behemoths like Wal-Mart? Is it a shock that Target was among the first companies, in the wake of the Supreme Court's Citizens United decision, to write a huge check to a political campaign? That fast-food chains are tenacious opponents of a higher minimum wage? That hotel owners from New Orleans to Santa Monica have fought against "living wage" laws? Having thwarted the unions, they now target the government — its taxes, its regulations, and above all, its wage standards.

So: most of the nation's remaining jobs are in services, where pay depends largely on acts of Congress. Houses are no longer valuable commodities. Private pensions are largely kaput, and many 401(k)s were also wiped out in the crash. What's left to protect economic security for ordinary Americans?

The answer, of course, is Social Security and Medicare. They remain by far our greatest social-policy achievements. Today, a 60-year-old man in the US has an expected life span of 20 more years — well above what was the case 50 or even 40 years ago, when Social Security didn't relieve poverty and Medicare was just getting underway. Improved medical care is surely part of that. But income security is also an important factor. People who are not poor live longer than people who are.

And Social Security prevents poverty. It's wealth, exactly like a big bond that you can't sell. If the monthly benefit is $1000 and the interest rate is two percent, the bond is worth $600,000 — and that's a bond you own, right now. You don't have to save for it: you've paid for it, up front, via the payroll tax. And there's more. As health-care expert Harold Pollack has pointed out, Social Security's Disabled Adult Child program is an insurance policy worth more than $400,000, protecting you if you happen to have a mentally or physically disabled loved one — something that could be only a car crash away.

Medicare has also been a huge success: popular, efficient, and less costly per "unit of care" provided than private medical care. Medicare is a big insurance policy you've already paid for, in full, that takes effect at 65 — an age when private insurers wouldn't touch you. That's wealth, too, a huge buffer between sickness and bankruptcy.


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3 Comments / Add Comment

Steve Rogers

This article goes to show that all the advanced degrees from all the best University's will not give you a single iota of common sense. If this continuing and worsening economic crisis has a silver lining it is that Economics as a science has been shown to come in just behind Voodoo and Astrology this is especially so when you adhere to a fundamentally flawed, barrel of hogwash like Keynesian theory.
Posted: January 06 2011 at 11:17 PM

Sefton Kincaid

I completely agree with the proposition that the middle class has been under attack for much of the last 40 years. However, with all due respect Mr. Galbraith, you lay a foundation of policy atop a multitude of economic fallacies and fail to support with any form of comprehensive logic your beliefs. This leads me to consider your editorial disturbingly harmful to America. And, I agree with your title!

First of all, you credit the UAW for providing jobs and pensions to workers of the middle class. Very well. It did support jobs for some time, but at what point do such professions become unsustainable? The automotive industry in America was over run by more innovative and lower cost manufacturers because of their ability to adapt to an ever changing business environment. All the UAW and a slowly dying auto industry did was promote the misallocation of resources from goods Americans are more productive at producing to goods Americans (supported by the bailouts from Congress in the late 70s and again in the last few years) “think” they should produce—GM as and icon of America comes to mind. Autoworkers suffered post-1979 bailout because they worked in a business that lacked economic vigor and was buoyed afloat by the interest groups lobbying on their behalf. I can go on, but suffice it to say, your facts are solely anecdotal and you provide no logical argument in your support of larger institutions, which I could realize was your intent after the second sentence.

Secondly, you lead the reader to a poignant discussion of employment. Unfortunately, your support of the lack of unionization and your promotion of a higher minimum wage can not only be viewed as economically unreasonable—this coming from a man who should know far more regarding economics than I—but downright obtuse. What do Americans need to boost their living standers? JOBS. By increasing the cost of labor—price floor, I learned it in ECON 101—you artificially reduce the demand for employment. Last time I checked, unemployment was still well above 9%, and that is not accounting for those who have totally given up searching for jobs and are now directly or indirectly supported by the extension of unemployment benefits. Government policies have unintended consequences. A dollar given to an individual, company, or program changes the environment for all and these consequences are too hard to accurately judge in their totality.

Finally, you delve into the socialist-minded crux of your editorial—more government and public money to support the public black hole that is social security. You maintain that Social Security and Medicare remains the only prop to a fading middle class in a time of need—who wouldn’t take free money when they can’t find work (see above on unemployment). But you fail to encompass your support for these programs with any justified logic. Instead, you state, “Social Security and Medicare can’t go bankrupt.” Unfortunately however, it can, and it will. Not insomuch as it will have to file for Chapter 7—municipalities can’t even do that!—but through a combination of uncontrolled fiscal spending and the support of Federal Reserve asset purchase programs, the government plays an illusive game of income redistribution to its populous. It uses taxpayer funds to bailout car companies and financial institutions—sometimes without any legislative authority i.e. Fannie and Freddy MBS purchases by the Fed—in exchange for punishing the future generations of taxpaying Americans.

So the government extends unemployment benefits and continues to pledge Social Security benefits through increased borrowing and furthering the supply of money. Over the past 40 odd years the dollar has lost 90% of its value while real wages have remained trailed. Yes, the middle class is getting borer. Those that work month-to-month and those with modest savings have both been exposed to a slow but meaningful deterioration in standard of living. But the corrosion of the middle class wage earner cannot be logically remedied through government programs. The political trend towards increased regulation, supervision and intrusion that has coincided with the promotion of powerful interest groups and drained America of its creativity, vision, ingenuity and wealth for far to long. At its core, the middle class has suffered from the debilitating drugs of big government, what we need is a straight talk and some discipline. Not an open bar and a shot of heroin
Posted: January 07 2011 at 12:02 AM


Sefton Kincade's reply really bugs me. Accordingly, anyone looking to collect Social Security, a program many of us have contributed to for decades, is looking for a handout. This isn't "free money." Let me see if I can figure out what Mr. Kincade is trying to tell us. Municipalities can't file for Chapter 7, but the conglomerates on Wall Street certainly can, but not before paying out obscene bonuses to their own that have shamelessly worked the system to their own benefit to the peril of the rest of who have to work for a living.

Unemployment is 9% but let's not blame big corporations for sending most of the manufacturing jobs overseas. And how dare poor workers making minimum wage have the audacity to ask for a living wage? Those in the Congress and Senate who abhor big government have no problem with huge corporations making huge profits on the backs of workers who have not a prayer of getting ahead let alone making ends meet.

It is almost laughable that social programs are seen as America's future downfall with no mention at all about two wars that are sucking our future from us now and for future generations. If we the estimates are correct that the wars are costing us ten billion a month, why is their not a bigger hue and cry from the far right to stop the madness? Why is the far right doing everything in their power to continue the deregulation practices that have in fact caused our current problems?

The tax payer money used to bail out the car companies has been paid back. Would you prefer the auto industry fail and have more people out of work? Agreed, the auto industry has made some huge mistakes, but if you punish them you punish the workers. Everyone loses and then you’ll blame the out-of-work for collecting unemployment.

America is a great country. Part of our greatness is taking care of our own.
Posted: January 07 2011 at 4:26 PM
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