Obama's Budget Delivers Middle-Class Fixes, But Not Nearly Enough

Set aside the size of the deficit for the moment. (Not that the Republicans will, but after what Obama called their “decade of profligacy” they don’t have much credibility on this issue.) Yes, the budget deficit is unsustainable, but there’s really not much to be done about it in this year of deep recession. The fundamental question is, what will this and subsequent budgets do to regrow America’s middle class? A better question, actually, is do we still have a middle class? Because what we had thought was the middle class in recent years was, we now know, largely an illusion, an inside-the-Beltway fantasy idea kept alive by mountains of household debt. Credit cards. Mortgage refinancings. No-doc loans. That’s all gone with the wind. What’s left? A population that’s either under water or barely keeping its head out of it. The point is: unless we create a new middle class, there will be no chance for us to grow out of this deficit or this crisis.

The president’s budget delivers a spate of needed fixes: New tax cuts for small business. Tax incentives for small businesses to make immediate investments. A near doubling of the middle-class tax cut to help families pay for child care. And a 6 percent increase in education because, Obama said, “there’s no better antipoverty program than a world-class education.” But all these initiatives put together are still only like the proverbial first step in a thousand-mile journey. America not only has the largest income inequality in the developed world; over the past three decades that inequality has increased the most among rich nations. Another way of saying that, of course, is that the middle class gradually disappeared. The public outrage of recent months over the resumption of Wall Street’s Medici-like compensation practices only scratches the surface of what has happened to our country.

This catastrophe is the result of more than a generation of major policy errors by both Democrats and Republicans. From the deregulatory, de-unionizing fervor of the Reagan supply-siders, to Bill Clinton’s almost immediate abandonment of middle-class tax cuts and subsequent eight years of cuddling up to the bond market and pushing global financial deregulation, to George W. Bush’s fiscal recklessness and upper-stratosphere tax giveaways, successive American governments have all but destroyed the American middle class, year by year. Obama and his team are still blaming George W. Bush for most things. But the forgotten middle class had been forgotten long before Bush came along. Like the Reaganites, the Clintonites simply decided there was nothing to be done about the vicissitudes of global markets─the markets would, in the end, discipline themselves─and they had let the markets rip much as the Bushies had done. In the process they had forced a middle class that had once been sustained by industrial jobs to maintain its lifestyle in the only way it could: with debt.

The debt-taking was encouraged by the government, along with the rest of the world, because we continued to pretend we could be the world's consumer of last resort. Average Americans were induced to take on more and more loans, more and more credit-card debt, so they could keep playing a role that they, and America, could no longer afford. The rising nations, first Japan, then China, were enriched with this consumption. And Washington went along, thinking somehow that the markets would make it all come right.

Now the payment for 30 years' worth of stupidity has come due. And it’s a bill that’s much, much bigger than Barack Obama’s $3.8 trillion budget. How to fix a generation’s worth of mistakes is the argument we should be having. Instead we’re going to hear all about the deficit.