Monday, November 17, 2008

Shredding Your Own Safety Net

Steven Greenhouse has a good Sunday piece on the weakening of unemployment protections. Unemployment benefit duration has fallen from 65 to 39 weeks. Only about a third of unemployed workers receive any unemployment benefits (down from one half in the mid-1970s), and 40% of very poor families who quality for public assistance actually get it, or half as many as in 1990. The implication is that more people losing all of their private-sector income with no public replacement will make the recession worse, or turn a recession into a depression.

The middle-class's happy cutting of social services was premised on a cluster of incorrect ideas: that investment income (including their house(s)) would always rise faster than inflation, they could always borrow at low rates and roll over the loan indefinitely, and that social services were for Other People, generally foreign and/or undeserving. Now bankruptcy filing are setting new records. The NYT has a good piece on this, with a story about one middle-class family caught in the bind, and caught by doing what they thought they were supposed to do.

The same goes for 401(k) plans, whose ability to harness the wealth-producing genius of the markets persuaded tens of millions of employees to allow their companies to replaced defined-benefit pensions with defined-contribution pensions. This "great risk shift" from companies to employees was sold as the road to riches. The LA Times writes that with many employees having lost ten years of gains in the last few months, these middle-class stalwarts are having a rethink.

The dismantling of social infrastructure - including unemployment and poverty benefits - was premised on the idea that poor people were bad people. If your society had good social services, it would encouraging losers. These losers would hang on to their loser habits. They would breed and multiply. (Hence the power of the image of the "welfare mom," who was also a "welfare queen," who "bought vodka with food stamps" - Reagan's oft-repeated urban legend - that she obtained by having six children with six different absent fathers.)

Well hey - Losers R Us. If we got rid of the dumb economic moralizing, we might both avoid Great Depression II and rebuild society.

Emphasis on the word WE. They, the economic leaders of the country and the world, aren't going to do Jack. See Gretchen Morgenson's typically acerbic analysis of the Paulson fumbling which isn't even helping bank credit, to say nothing of credit for the people.

Since the $700 billion TARP was funded, it has been used solely to shore up banks and other financial institutions. (An irreverent friend calls it The Act Rewarding Plutocrats.)

Treasury officials did move closer to helping consumers with a new plan floated last week aimed at offering $50 billion in loans to companies that issue credit cards, make student loans and finance car purchases.

Kind of interesting, isn’t it, that troubled homeowners are missing from the list of TARP beneficiaries and left to fend for themselves?
Yes you said it - interesting. Interesting that WE helped build this system by submitting to its world view. Interesting that WE might reconsider.

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