“Easy for Me to Say” is a FrumForum feature series in which David Frum answers reader questions about political issues. Readers are invited to pose questions that take the form of: “OK – so what would you do instead of this or that politician you’ve criticized?”
Questions should be e-mailed to editor [at] frumforum.com with “Easy for Me to Say” in the subject line.
Realistically, the president’s Kansas speech translates into a formula of higher taxes on the rich to pay for more spending on favored Democratic public-sector constituencies. But what about the much larger private-sector middle class? Does the president have anything to offer those people — aside from the promise of a bigger government that might hire somewhat more people to enjoy the superior retirement packages offered to government workers?
Short answer: No.
What would a serious plan to improve middle-class incomes and opportunities look like?
It would start by addressing the way in which middle-class income is drained off before it ever reaches the middle class.
During the last expansion, the cost of labor to employers did rise. It’s just that virtually none of that additional money flowed through to raise wages. Over this decade’s expansion, the cost of employing labor rose by an average of 25%. None of this money reached employees. Every dime was intercepted by rising health care costs. For wages to rise again, health care costs must slow. We saw that happen in the 1990s: HMOs controlled health care costs, employees got raises.
Health care is such an important part of the income story that you could almost stop there. Yet there’s a second piece: college costs. Higher education costs have been rising more than twice as fast as inflation, faster than almost any purchase except health insurance. It was often to pay those rising costs that families accepted the home equity lines of credit and second mortgages that contributed so much to inflating the housing bubble.
At the same time as reducing costs for middle-class families, actions can be taken to take to boost incomes.
Over the past two decades, the U.S. has lost global market share, especially to China. One of China’s most important tools has been the manipulation of its currency, which it has held artificially cheap compared with the dollar.
If China tried to gain global market share by subsidizing its exports direct from the Chinese treasury, such subsidies would trigger U.S. retaliation under global trade rules. However, global trade rules do not apply to subsidies created by monetary means. Through this anomaly, the U.S. has outsourced more jobs than it would have if China’s currency had moved freely, like the euro or the yen. It’s time for the U.S. to reconsider its casual attitude to monetary manipulation. A more expensive yuan would slow and possibly even reverse the flow of jobs across the Pacific. If the yuan goes up, Chinese exports decline and U.S. exports rise. More work is done in the U.S., meaning more jobs, spurring a higher demand for labor and higher wages.